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Practical Income Manual 2020.

Special assumptions

• Deferred capital insurance that is used to create income

Regulations: Art. 25.3 a) 6 Law Personal Income Tax

Life or disability insurance that provides benefits in the form of capital and said capital is used to create life or temporary annuities will not be taxed at the time the contingency covered by the insurance occurs, but will do so at the time the insurance is created. life or temporary annuities in accordance with their regime discussed below. To do this, it is necessary that the possibility of conversion be included in the insurance contract and that the capital not be made available to the taxpayer by any means.

• Disability insurance whose beneficiary is the mortgagee

Regulations: Fortieth Additional Provision Law Personal Income Tax

The income derived from the benefit for the disability contingency covered by insurance will have the same tax treatment that would have corresponded if the beneficiary had been the taxpayer himself, that is, they will be considered income from movable capital, when the following requirements are met:

  • That it is received by the taxpayer's mortgage creditor as its beneficiary.
  • That the taxpayer's mortgage creditor has the obligation to fully or partially amortize the taxpayer's mortgage debt.
  • That the mortgage creditor is a credit institution, or another entity that professionally carries out the activity of granting loans or mortgage credits.

However, these incomes will under no circumstances be subject to withholding.

Therefore, in this case, when the covered contingency occurs, the cancellation of the mortgage loan by an insurance entity with which the taxpayer has taken out life insurance that covers the risk of absolute disability, gives rise to a return on capital for the taxpayer. the difference between the total amount of the insurance benefit corresponding to the credit institution (mortgagee) and the amount of premiums paid in the current year. The amount of the remainder received by the taxpayer will also be considered return on capital in accordance with article 25.3 a) of the Personal Income Tax Law

Important: The condition for the receipts derived from life or disability insurance to be taxed in personal income tax is that the policyholder who contracts and pays the insurance premium (or the insured if the insurance is collective), and the beneficiary of the benefit coincide, except in this special insurance case in which the beneficiary is the mortgagee; Otherwise, the collection will normally be taxed in the Inheritance and Donation Tax.