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V1688-18 13 June 2018 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · rendimientos del trabajo

Potential application of the 40% reduction to pension plan benefits received as a lump sum

A retiree enquired about calculating the withholding tax on a pension plan lump-sum withdrawal, applying the 40% reduction for contributions made prior to 2007. The Directorate General for Taxes (DGT) clarifies that the reduction applies if legal deadlines and requirements are met, although withholding tax is calculated on the total benefit amount.

The question raised

Calculation of the withholding tax corresponding to the benefit received, taking into account the application of the 40 percent reduction to the portion corresponding to contributions made until December 31, 2006.

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 more than two years have elapsed since the first contribution and it is received within the timeframes established by the twelfth transitional provision. This reduction may only be applied to amounts received within the same tax period, at the taxpayer's discretion. For the calculation of withholding tax, the reduction is subtracted to determine the base, but the resulting rate is applied to 100% of the benefit.

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