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V1698-18 14 June 2018 · SG de Tributación de las Operaciones Financieras Criterion in force
IRPF · rendimientos del trabajo

40% pension plan reduction applicable if received as a lump sum before 2019

A taxpayer inquired about redeeming a pension plan with contributions made prior to 2007 to qualify for the 40% reduction. The Directorate General for Tax Assurance (DGT) clarified that this reduction applies to the portion of the benefit corresponding to contributions made up to 2006, provided it is collected as a lump sum within the legal timeframe.

The question raised

Whether the entirety of the rights in the plan must be received in a single payment to apply the 40 percent reduction. Furthermore, whether the taxpayer may determine the benefits to be received at their discretion, and whether they may transfer the rights to another pension plan without tax cost.

The DGT's ruling

Pension plan benefits are considered income from employment. If received as a lump sum, a 40 percent reduction may be applied to the portion corresponding to contributions made until December 31, 2006, provided that the terms of the twelfth transitional provision are met. This reduction may only be granted once per tax period, at the taxpayer's discretion, regardless of the number of plans held. The transfer of rights between pension plans has no tax consequences if regulatory conditions are met.

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