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V2907-21 18 November 2021 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Insurance compensation for property damage in a fire is not exempt from Income Tax

A taxpayer inquired whether compensation received following a fire at a leased premises is exempt from Income Tax (IRPF). The Directorate General for Taxes (DGT) ruled that it is not exempt, as it does not constitute personal injury compensation but rather a capital gain.

The question raised

Whether the amount paid by the insurer is exempt from Personal Income Tax, and the potential effects of a variation in the amount of compensation, given that the aforementioned judgment is not yet final.

The DGT's ruling

Compensation for property damage is not exempt under Article 7.d) of the Personal Income Tax Law (LIRPF), as this only covers personal injury. It is classified as a capital gain or loss, calculated as the difference between the amount received and the proportional part of the acquisition value of the damaged asset. As the appealed judgment is pending, the income must be attributed to the tax year in which the judicial resolution becomes final.

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