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V3070-21 7 December 2021 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización

Compensation for non-pecuniary damages agreed in a judicial settlement is exempt from Personal Income Tax

A query was raised regarding whether a €1,250 compensation payment for non-pecuniary damages, agreed through a court-approved settlement, is subject to Personal Income Tax (IRPF). The Directorate General of Taxes (DGT) ruled that, as it constitutes compensation for civil liability arising from personal injury with a judicially recognised amount, the income is exempt.

The question raised

Taxation under Personal Income Tax (IRPF).

The DGT's ruling

Compensations for civil liability for personal damages (physical, psychological, or moral) are exempt if their amount is legally or judicially recognized. An amount is considered judicially recognized both when set by a judge and when reached through intermediate formulas with judicial intervention, such as a judicial settlement or a compromise approved by decree. Therefore, compensation for moral damages agreed upon in a judicial compromise meets the exemption requirements and should not be subject to withholding.

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