Inability to apply the 40% reduction to insured pension plans contracted after 2006

The Directorate General of Taxes (DGT) has issued a binding ruling that delimits the scope of the 40% reduction provided for in the transitional regime of Personal Income Tax (IRPF). This pronouncement is key to understanding the tax treatment of withdrawals from pension products with recent contract dates.

What the DGT has resolved

The inquiry raised whether it was possible to apply the 40% reduction when withdrawing benefits from insured pension plans. After analyzing the regulations, the DGT has determined that these benefits are considered employment income. The ruling establishes that the reduction from the transitional regime can only be applied to the portion of the benefit corresponding to contributions made until December 31, 2006.

In the specific case analyzed, as the plans were contracted in the years 2012 and 2019, all contributions are subsequent to the deadline established by law. Therefore, there is no basis for applying the aforementioned reduction, as there is no capital accumulated under the previous regime.

What this means for you

If you are an individual with insured pension plans, this ruling defines the tax burden of your future withdrawals. It is fundamental to distinguish the contract date of the product, as:

• Plans contracted entirely after 2006 are not entitled to the 40% reduction.
• The withdrawal of these funds will be taxed entirely as employment income in the general taxable base.
• The reduction is only viable if the plan contains contributions made before the end of 2006.

What should be done

When considering a withdrawal from pension plans, it is necessary to verify their date of establishment and the breakdown of the contributions made. Since the application of the reduction depends strictly on the chronology of the funds, each situation requires an analysis of the plan's composition to determine the exact tax impact on IRPF. It is recommended to assess your particular situation before proceeding with any movement of capital.