Insurance payouts will be taxed when the judicial ruling becomes final

Receiving an insurance indemnity following a judicial process raises doubts regarding the exact moment when the resulting capital gain or loss must be declared. The Dirección General de Tributos (DGT) has specified the criteria for temporal imputation for these operations under Personal Income Tax (IRPF).

What the DGT has ruled

The advisory body establishes that the indemnity received generates a capital gain or loss. This result is obtained through the difference between the amount received and the proportional part of the acquisition value of the damaged asset. If the indemnity is equivalent to the repair cost, no gain or loss will occur.

Regarding the timing of the declaration, the DGT determines that the temporal imputation must be carried out in the tax period in which the judicial ruling determining the right to the indemnity or its amount becomes final. It is not about the moment of actual collection, but rather the moment when the sentence can no longer be appealed.

What this means for you

If you are an individual who has had to resort to judicial proceedings to obtain an indemnity for an insurance event affecting your assets, the timing of your tax obligation does not depend on when you receive the money in your bank account. The determining factor is the finality of the judicial ruling.

This implies that, even if the collection occurs in a tax year different from that of the sentence, the taxable event is understood to have taken place in the year in which the judicial ruling becomes final. It is essential to correctly calculate the basis of the gain or loss by subtracting the proportional part of the acquisition value of the affected asset.

What you should do

In a situation of this type, it is necessary to:

• Identify the exact date on which the judicial ruling becomes final.
• Calculate the proportional part of the acquisition value of the affected asset to determine if there is a capital gain or loss.
• Verify if the indemnity only covers the repair cost, which would nullify the existence of a gain or loss.
• Assess each particular case with a specialist to ensure correct imputation in the corresponding tax year.