No 30% reduction for collective retirement insurance benefits

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the taxation of benefits derived from collective insurance contracts intended to implement pension commitments. This resolution clarifies the tax treatment of these incomes at the time they are received by the beneficiary.

What the DGT has ruled

The body has determined that retirement benefits obtained through these collective insurance contracts must be classified as employment income, in accordance with the provisions of article 17.2.a) 5ª of the Personal Income Tax Law (LIRPF).

Due to this legal nature, the DGT concludes that such benefits are excluded from the scope of application of the 30 percent reduction provided for in article 18 of the LIRPF. This exclusion remains in place even if the beneficiary receives the benefit as a lump sum or if the income is classified as being obtained in a notoriously irregular manner.

What this means for you

If you are a retiree receiving a benefit derived from a collective insurance policy that implements pension commitments, this ruling has a direct impact on your tax burden. Unlike other cases of irregular income, you will not be able to apply the 30% reduction to the amount received as a lump sum.

For companies, this ruling confirms the nature of collective insurance contracts acting as pension vehicles, establishing that the tax treatment of the final benefit does not allow for the benefit of the irregularity reduction, regardless of the payment method.

What should be done

Given the application of this ruling, it is necessary to analyze the exact nature of the insurance contract and the way pension commitments are implemented. Since the classification of the income as employment income prevents access to the reduction in article 18 of the LIRPF, it is recommended to assess each particular situation to ensure that the tax return correctly reflects the nature of the benefit received.