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V1936-20 15 June 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancia patrimonial

Reimbursement of legal defence costs constitutes a capital gain included in the general tax base

A taxpayer enquired whether a €65,000 reimbursement for legal defence costs from an insurance policy was taxable and how to proceed if repayment was required. The Directorate General for Taxes (DGT) ruled that this constitutes a capital gain that must be included in the general tax base.

The question raised

Taxation in Personal Income Tax of the aforementioned amount and of its possible refund to the insurance company, as the policy establishes its return in the event of being convicted.

The DGT's ruling

The amount received as reimbursement for legal defense expenses constitutes a capital gain as it is a non-exempt variation of assets. Since it does not derive from a transfer, it is classified as general income and is included in the general tax base. If the money must be returned due to failure to meet insurance requirements, the adjustment must be made through the rectification of the tax return for the fiscal year in which it was declared. Defense expenses are not deductible as employment income unless they arise from litigation with the employer and are subject to a limit of 300 euros.

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