Deadline for the 40% pension plan reduction extended until 2029

The General Directorate of Taxes (DGT) has issued a relevant ruling regarding the available timeframe to apply the 40% reduction to pension plan benefits. This tax benefit is linked to contributions made in periods prior to the entry into force of current regulations.

What the DGT has ruled

The inquiry focuses on determining the deadline for applying the 40% reduction provided for in the transitional regime of the Personal Income Tax (IRPF) Law. The DGT establishes that pension plan benefits are considered income from employment.

For those benefits corresponding to the portion of contributions made until December 31, 2006, it is possible to apply the 40% reduction provided that the benefit is received as a lump sum and the requirements of the twelfth transitional provision are met. Specifically, if the retirement contingency occurs during the year 2027, the deadline to receive said benefits with the right to the reduction ends on December 31, 2029.

What this means for you

This ruling directly affects individuals who hold pension plans with contributions made before 2007. If you are in a situation of retirement or a similar contingency, you must keep in mind that there is a strict time limit to exercise this tax right.

The key lies in the date of the contingency and the date the benefit is received as a lump sum. It is not enough for retirement to occur in a specific year; the collection must take place within the timeframe set by the transitional regulations to avoid losing the benefit.

What you should do

It is necessary to verify the composition of your pension plans to identify which part of the contributions was made before December 31, 2006. Since the deadline for 2027 contingencies expires in December 2029, it is fundamental to evaluate the method of receiving the benefit.

Every financial situation is different and legal deadlines are decisive. It is recommended to assess your particular case to ensure that the receipt of the lump sum complies with the terms that allow for the application of the 40% reduction.