40% reduction on insured pension plans: conditions and deadlines

The General Directorate of Taxes (DGT) has issued a relevant ruling regarding the application of the 40% reduction on benefits from insured pension plans. This issue arises from doubts about whether this tax benefit is applicable when benefits are received as a lump sum.

What the DGT has ruled

The body establishes that benefits from insured pension plans are considered earned income. Consequently, if the beneficiary decides to receive the benefit as a lump sum, they are entitled to apply the 40% reduction to the portion of the benefit corresponding to contributions made until December 31, 2006.

For this benefit to be effective, two fundamental requirements must be met:

• More than two years must have passed since the first contribution to the plan.
• The benefit must be received within the period established by the twelfth transitional provision of the Personal Income Tax (LIRPF), depending on the year in which the contingency occurs.

In the scenario presented, since the contingency occurs in the year 2025, the maximum period to avail of this reduction ends on December 31, 2027.

What this means for you

This ruling directly affects individuals who hold insured pension plans with a history of contributions prior to 2007. If you are in this situation, the way you decide to receive your benefit—whether as an annuity or as a lump sum—will have a direct impact on your tax burden.

The possibility of applying the 40% reduction to the portion of old contributions can mean a significant difference in your Personal Income Tax (IRPF) settlement, provided that the receipt schedule established by the regulations is strictly respected.

What you should do

It is necessary to verify the date of the contributions made to your insured pension plan to identify which part of the benefit is eligible for the reduction. Likewise, it is essential to monitor the contingency schedule so as not to exceed the legal receipt deadline. Since every financial situation is unique, it is recommended to assess your specific case to determine the optimal time to receive the benefit.