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V2796-18 25 October 2018 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · ganancia patrimonial

Compensation for construction defects is tax-free if used entirely for repairs

A query was raised regarding whether judicial compensation for defects in the construction of a dwelling should be subject to Personal Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that if the amount received is used to cover the cost of repairs, no capital gain arises and, therefore, no tax is due.

The question raised

Taxation in the Personal Income Tax (IRPF) of the amounts received.

The DGT's ruling

Compensation for construction defects is classified as a capital gain or loss. If the amount received coincides with the cost of the repair, no change in net wealth is calculated. A capital gain will only occur if the amount not allocated to repairs generates an increase in the value of the assets. In the event of a gain, it shall be integrated into the general taxable base.

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