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V1725-22 20 July 2022 · SG de Impuestos Patrimoniales, Tasas y Precios Públicos Criterion in force
IP · seguro de decesos

Excess capital from funeral insurance taxed as inheritance rather than life insurance

A query was raised regarding whether the surplus from a funeral insurance policy, after covering funeral expenses, qualifies for the life insurance tax reduction. The Directorate General for Taxes (DGT) ruled that it does not, as funeral insurance is a distinct legal entity and the remaining funds form part of the deceased's estate.

The question raised

Question posed: Whether the capital to be received by the heirs can be categorized within the taxable event of article 3 of the Inheritance and Gift Tax Law as "receipt of amounts by the beneficiaries of life insurance contracts" and, therefore, be subject to the reduction provided in article 20.2 b) of the same.

The DGT's ruling

Funeral insurance is a distinct figure from life insurance according to the Insurance Contract Law. The excess of the sum insured over the cost of the service corresponds to the dormant estate, being integrated into the deceased's estate. Therefore, these amounts are taxed under the taxable event of the acquisition of assets by inheritance (art. 3.1.a LISD) and not under the receipt of life insurance (art. 3.1.c LISD), which prevents the application of the reduction provided in article 20.2.b of the LISD.

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