40% reduction on pension plans: contributions made before 2007

The Dirección General de Tributos (DGT) has issued a relevant ruling regarding the application of the transitional regime in the taxation of pension plan benefits. The focus of the inquiry centers on the possibility of applying the 40% reduction to those benefits originating from contributions made before the current regulations came into force.

What the DGT has ruled

The DGT establishes that pension plan benefits are considered income from employment. In this context, it is possible to apply the 40% reduction to the portion of the benefit that corresponds to contributions made until December 31, 2006. For this tax benefit to be applicable, two fundamental requirements must be met:

• The benefit must be received as a lump sum.
• At least two years must have passed since the first contribution made to the plan.

Furthermore, the ruling clarifies that for contingencies occurring in 2025, the deadline to opt for this transitional regime ends on December 31, 2027. A key aspect is that this reduction can be applied to each plan independently within the established timeframe.

What this means for you

If you are an individual with pension plans that have a history of contributions dating back to years prior to 2007, this ruling confirms your right to a lower tax burden at the time of redemption. The key lies in the distinction between the capital contributed before and after said date. If you decide to redeem the plan as a lump sum, the proportional part of the old contributions will benefit from the 40% reduction.

What you should do

It is necessary to verify the date of contributions in each of your pension plans to determine which part of the benefit is eligible for this reduction. Since the deadline to apply this transitional regime ends on December 31, 2027, for 2025 contingencies, it is fundamental to know the deadlines and the method of receipt (lump sum) to optimize the tax burden. Each particular situation must be analyzed to ensure compliance with the requirements of the Personal Income Tax (IRPF) Law.