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V0245-18 1 February 2018 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · indemnización por despido

30% tax reduction on redundancy payments applicable if generation period exceeds two years

A worker enquired when a redundancy payment reached via judicial agreement should be taxed and whether the 30% reduction could be applied. The DGT ruled that income is imputed when the judicial resolution becomes final and that the reduction applies if the generation period exceeds two years.

The question raised

An inquiry is made regarding the application of the reduction provided for in Article 18.2 of the Personal Income Tax Law.

The DGT's ruling

Severance pay is considered income from employment that is attributed to the tax period in which the judicial ruling determining its amount becomes final. The 30% reduction provided in Article 18.2 of the Personal Income Tax Law (LIRPF) is applicable to the excess severance amount when the generation period, determined by years of service, exceeds two years. Said reduction is subject to an annual limit of 300,000 euros and additional rules apply to income exceeding 700,000 euros.

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