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V3336-20 11 November 2020 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IRPF · rendimientos del trabajo

30% Income Tax reduction applies to lump-sum payments replacing life annuities under certain conditions

A taxpayer inquired whether a lump-sum payment replacing a life annuity from a former employer qualifies for the 30% tax reduction. The Directorate General for Taxes (DGT) ruled that it is applicable, provided the amount is attributed to a single tax period.

The question raised

In view of the possible substitution of the supplement by a single payment, an inquiry is made regarding the Personal Income Tax (IRPF) treatment of said payment.

The DGT's ruling

Compensation for the substitution of indefinite supplements or pensions is considered income from employment obtained in a notoriously irregular manner. Therefore, the 30% reduction provided for in Article 18.2 of the Personal Income Tax Law (LIRPF) is applicable, provided that the amount is imputed to a single tax period. This reduction is not limited by the five-year rule, as said exclusion only affects income with a generation period exceeding two years. The maximum amount for the reduction is 300,000 euros.

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