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When it comes to explaining how life insurance is taxed, it is necessary to clarify that it varies according to who is the policyholder, the insured and the beneficiary. In the first case it is the person who pays the premium, the second is the user who is protected against the possible risks and the third profile is the one who receives the capital insured. Thus, depending on these parameters, it is possible that the collection of money coming from this policy is subject to the income tax of the natural persons (income taxes) or the inheritance and donations tax (ISD).
In addition to these two differentiations, the payment of taxes in a life insurance is also due to different situations: when the insured survives (invalidity or dependency) or if he dies. In both cases, the person who perceives the benefit is different, so the taxation follows the same line.
How do life insurance taxes in each case?
In case of survival of the insured, if the policyholder is the same person as the beneficiary, life insurance is taxed in the income tax. However, if both profiles do not correspond to the same individual, it will be necessary to pay the inheritance tax and donations for the collection of the benefits of the policy, which would correspond to the beneficiary.
In another case in which the insured die, when the policyholder and the beneficiary is the same person, the benefits are taxed in the income tax, although if they are different subjects, the beneficiary must attend to how the life insurance taxes in the tax of Inheritances and donations.
Important aspects of how life insurance in the ISD is taxed the inheritance and donations tax is different according to each autonomous community, as this tribute is part of the competencies of each region. Therefore, the final taxation of the life insurance benefit will depend on the place where the insured lives.
It must be taken into account that insurance companies are not able to make payment to the beneficiaries until they have not justified the corresponding tax credit. However, to expedite this process, the most common thing is to authorize the insurer to do the tax settlement.
Also, as we have discussed before, it is necessary to know how life insurance is taxed in the inheritance and donations tax when the one who benefits from the insured capital is a different person from the policyholder. The modality of this payment can be made as succession if the insured has died or as donations if he or she is still living or is the beneficiary.
Finally, and referring to taxation in income tax, it is necessary to consider that the net yield, on the basis of which the tax is established, depends on how the rescue is carried out. If you opt for the form of capital, you will need to pay the difference between the benefits and the premiums paid up to that time. However, if the option is to benefit from an immediate income, whether temporary or life-long, the net yield is calculated by applying a certain percentage to the amount that varies according to the number of years that the benefit or the age of the beneficiary lasts, Respectively.