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V0528-17 2 March 2017 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · rendimientos del trabajo

40% reduction applicable to pension plan benefits received as a lump sum under certain requirements

The inquirer asks whether the 40% reduction can be applied to contributions made before 2007 when redeeming a pension plan due to unemployment and another due to retirement. The Directorate General for Taxes (DGT) responds that if retirement benefits are received early, they are considered retirement benefits for tax purposes, and the reduction may be applied subject to certain requirements.

The question raised

Application of the 40 percent reduction to amounts received as a lump sum in the two aforementioned scenarios, for the portion corresponding to contributions made prior to 2007.

The DGT's ruling

Pension plan benefits are considered earned income. If received as a lump sum, a 40% reduction may be applied to the portion corresponding to contributions made until December 31, 2006, provided that two years have elapsed since the first contribution and receipt occurs within the timeframes established by the twelfth transitional provision. This reduction may only be applied once per tax period, regardless of the number of plans held by the taxpayer.

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