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V2524-17 5 October 2017 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización sustitutoria

Compensation for failure to enforce a judgment is taxed as a capital gain in Personal Income Tax

A member of a homeowners' association received compensation from a local council due to the impossibility of enforcing a demolition order. The Directorate General for Taxes (DGT) has ruled that this amount constitutes a capital gain that must be taxed within the general tax base.

The question raised

Taxation of the compensation under Personal Income Tax.

The DGT's ruling

Compensation in lieu of performance of a judgment constitutes the receipt of income and is not exempt. By altering the composition of assets without being a transfer, it is classified as a capital gain for the amount received. This gain must be included in the general taxable base of the tax.

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