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V1699-14 3 July 2014 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · indemnización

Disability compensation arising from illness is not exempt from Personal Income Tax (IRPF)

A query was raised regarding whether compensation for permanent disability arising from a collective insurance policy is exempt from tax. The Directorate General for Taxes (DGT) ruled that, as it covers illness risks rather than just accidents, the exemption does not apply and it must be taxed as income from movable capital.

The question raised

1. Application of the exemption provided for in Art 7.d) of Law 35/2006.

The DGT's ruling

The exemption under Article 7.d) of Law 35/2006 does not apply if the compensation arises from a contract covering illness, as the exemption is limited to accident insurance. These benefits are taxed as income from movable capital, where the income is the difference between the capital received and the premiums for the period. As it is an annually renewable insurance, the transitional regime of the thirteenth transitional provision does not apply.

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