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V0984-19 8 May 2019 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · derechos consolidados

Potential application of the 40% reduction to pension plan benefits for unemployment and subsequent retirement

The inquirer asks whether the 40% reduction can be applied to benefits from a long-term unemployment pension plan and subsequently reapplied upon receiving retirement benefits. The Directorate-General for Taxes (DGT) responds that these benefits are classified as employment income and, since retirement constitutes a distinct contingency, the reduction may be applied in both instances provided legal timeframes are met.

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 amounts received as a lump sum. Right to re-apply said reduction to the benefit received as a lump sum in a future tax year, following the onset of retirement.

The DGT's ruling

Pension plan benefits 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). The case of long-term unemployment is deemed to have occurred when the requirements to exercise consolidated rights are met. Since retirement is a contingency distinct from the unemployment provision, it is possible to apply the 40% reduction again if the retirement benefit is received as a lump sum.

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