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V1772-18 19 June 2018 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · comunidad de propietarios

Late payment interest and legal costs awarded to a homeowners' association are taxed as capital gains

A homeowner requested clarification on the taxation of late payment interest on fees and the legal costs awarded to the homeowners' association. The Directorate General of Taxes (DGT) ruled that both concepts are compensatory in nature and must be taxed as capital gains.

The question raised

Taxation of default interest and the award of legal costs.

The DGT's ruling

The award of legal costs has a restorative character regarding defense expenses, which constitutes a capital gain pursuant to Article 33.1 of the Personal Income Tax Law (LIRPF). Default interest for non-payment of fees, being compensatory for delay, does not constitute income from movable capital but rather capital gains. Both concepts shall be attributed to each owner according to the applicable rules or agreements, generally their share of participation.

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