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A retiree inquires whether the 40% reduction in Personal Income Tax (IRPF) can be applied when withdrawing the remaining portion of a pension plan in a lump sum, where contributions were made prior to 2007. The DGT responds that, as retirement is a contingency distinct from unemployment, the period for applying the transitional reduction regime expires on December 31, 2024.
Question posed: Possibility of applying the 40 percent reduction in Personal Income Tax in 2023 to the amount received as a lump sum due to the retirement contingency.
Pension plan benefits are considered earned income. If received as a lump sum, the 40% reduction is applicable pursuant to the twelfth transitional provision of the LIRPF for contributions made up to 2006. Given that the retirement contingency occurred in 2022, the period for applying this transitional regime ends on December 31, 2024.
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