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V2027-18 6 July 2018 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · renta vitalicia

Life annuities and death benefits taxed via Income Tax or Inheritance Tax depending on policyholder and beneficiary status

An insurance company has requested clarification on the tax treatment of a life annuity product with a death benefit. The DGT has ruled that if the policyholder and the beneficiary are the same person, it is subject to Personal Income Tax (IRPF); however, if they are different persons, it is subject to Inheritance and Gift Tax (ISD).

The question raised

Taxation of the various operations derived from this product.

The DGT's ruling

When the policyholder, the insured, and the beneficiary are the same person, the immediate life annuity is taxed under Personal Income Tax (IRPF) as income from movable capital, applying percentages based on age. If the insurance covers two lives and one dies, the survivor is taxed under Inheritance and Gift Tax (ISD) on the increased portion of the annuity and on the portion of the deceased's premium. The death benefit received by a beneficiary other than the policyholder is subject to Inheritance and Gift Tax (ISD). The surrender value is taxed under Personal Income Tax (IRPF) as income from movable capital after deducting premiums and annuities already taxed.

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