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V2925-18 14 November 2018 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · responsabilidad civil

Professional indemnity payments taxed as capital gains in the general tax base

A taxpayer inquired whether compensation received from insurance for professional negligence (which prevented them from claiming redundancy pay) is exempt from tax. The Directorate General for Taxes (DGT) ruled that it is not exempt, as it compensates for financial loss rather than personal injury.

The question raised

Possible consideration of the amount received by the taxpayer as exempt income.

The DGT's ruling

Compensation for contractual civil liability arising from professional negligence must be classified as a capital gain. As it is neither an exemption for personal injury nor for dismissal, it must be included in the general taxable base pursuant to Articles 33 and 48 of the Personal Income Tax Law. Its quantification shall be the amount determined by the out-of-court settlement or the court judgment.

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