The Supreme Court establishes criteria on the date of application of the reduction for compensatory pensions to the spouse of the IRPF.

The Supreme Court clarifies the moment from which the reduction for compensatory pensions can be applied to the spouse: whether it is from the date on which the regulatory agreement between the parties is signed or from the date on which the court decision ratifying it is issued.

How is the payment of the compensatory pension to the spouse taxed for personal income tax purposes?

The compensatory pension to the spouse has a special treatment in the income tax return in Spain, both for the one who pays it and for the one who receives it. Let’s see how it is taxed in each case:

• For who pays the compensatory pension:

• Reduction in the taxable base: The compensatory pension paid in favor of the ex-spouse is deductible from the taxable base of the payer in his income tax return. This means that the amount paid reduces the total income on which the tax is calculated, thus reducing the tax burden.
• In order to be able to apply this deduction, the compensatory pension must be established in a judicial sentence and cannot be deducted if it is paid voluntarily without a judicial agreement.

1. For the person receiving the compensatory pension:

• Income from work: The compensatory pension received by the spouse is considered an income from work, so it must be declared as such in his or her Personal Income Tax (IRPF). This means that the person receiving it must include it in his or her income tax return as part of his or her income and, therefore, pay tax on it.
• As it is an employment income, the compensatory pension is subject to the same tax rates as income derived from employment.

At what point can the paying spouse apply the reduction in personal income tax? What does the Supreme Court say?

Supreme Court rulings no. 1369/2024, of July 22, and no. 1397/2024, of July 23, determine which is the moment from which the reduction in the taxable income for personal income tax purposes can be applied. No. 1397/2024, of July 23, determine the moment from which the reduction in the personal income tax base for compensatory pensions in favor of the spouse can be applied: whether from the date on which the regulatory agreement between the parties is signed or from the date on which the court decision ratifying it is issued.

Specifically, this reduction is regulated in article 55 of the LIRPF, according to which: “compensatory pensions in favor of the spouse and annuities for alimony, with the exception of those fixed in favor of the taxpayer’s children, both paid by judicial decision, may be subject to reduction in the taxable base”.

The Supreme Court establishes as an interpretative criterion that, for the purposes of said precept, the reduction in the taxable base for compensatory pensions in favor of the spouse, paid by judicial decision, is applicable from the date on which the regulatory agreement between the parties establishing their payment is signed, provided that the subsequent judicial decision ratifying it does not modify what was agreed in said regulatory agreement.

The Court does not share the literal and restrictive interpretation of the rule, so that the expression “by judicial decision” should not be considered as an impediment or condition for the deployment of its effects until the existence of “a judicial sentence of divorce”.

Thus, it considers that the recognition of the tax consequences of a regulatory agreement approved in court is possible, without prejudice to the fact that, once the regulatory agreement has been ratified by the parties, its approval in court triggers the deployment of its enforceability in everything that has been approved.

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