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V0383-20 19 February 2020 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · derechos consolidados

Potential application of the 40% reduction on pension plan withdrawals due to long-term unemployment

The inquirer asks whether they can apply the 40% tax reduction when withdrawing their pension plan due to long-term unemployment and if they could apply it again upon retirement. The Directorate General for Taxes (DGT) responds that these amounts are taxed as employment income and that the reduction can be applied if the timeframes specified in the twelfth transitional provision are met, allowing for a subsequent application upon retirement as it constitutes a different contingency.

The question raised

Question posed: Possibility of partially exercising consolidated rights in the event of long-term unemployment and the possibility of applying the 40 percent reduction to the amounts received. Right to re-apply said reduction to the benefit received in a future tax year upon accessing retirement.

The DGT's ruling

Amounts received due to long-term unemployment are considered income from employment and, if received as a lump sum, may be eligible for the 40% reduction pursuant to the twelfth transitional provision of the Personal Income Tax Law (LIRPF). Once said reduction has been applied, any remaining amounts received in other tax years shall be taxed without it. Retirement is a distinct contingency; therefore, if received as a lump sum, the 40% reduction would again be applicable under the conditions of the aforementioned transitional provision.

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