40% reduction in pension plans: requirements of the transitional provision

The withdrawal of pension plans constitutes earned income for Personal Income Tax (IRPF) purposes. In this context, doubts have arisen regarding the application of specific tax benefits for contributions made in periods prior to the 2007 reform.

What the DGT has ruled

The Directorate General of Taxes (DGT) has clarified that benefits received as a lump sum may benefit from a 40% reduction on the portion of the benefit corresponding to contributions made until December 31, 2006. For this benefit to be applicable, the following requirements must be met:

• More than two years must have passed since the first contribution.
• The receipt must take place within the period established by the twelfth transitional provision.
• The contingency must have occurred in the corresponding period.

Furthermore, the ruling establishes that if the taxpayer holds several pension plans, the reduction can be applied individually to the lump-sum benefit of each one of them.

What it means for you

If you are the holder of long-standing pension plans, it is essential to identify which part of your capital comes from contributions made before January 1, 2007. For contingencies that took place during the year 2023, the deadline to opt for this transitional regime ends on December 31, 2025. This benefit allows for the reduction of the IRPF taxable base on the portion of the benefit linked to that historical period.

What you should do

It is necessary to verify the date of the contributions in each of your pension plans to determine what percentage of the benefit is eligible for the reduction. Since the deadline for 2023 contingencies is approaching, it is important to analyze the situation of each plan independently to optimize the tax burden at the time of withdrawal. It is recommended to assess each particular case according to the composition of your funds.