Refund of undue pensions: when to amend your Personal Income Tax return

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the tax treatment of pensions received unduly. The central issue lies in determining in which fiscal year the reduction of income must be reflected when a taxpayer must return amounts from a pension that they were not entitled to.

What the DGT has ruled

The DGT has established that the refund of pension amounts received unduly has no tax impact in the fiscal year in which the actual reimbursement of the funds takes place. The reason is that these amounts are considered non-enforceable earnings. Therefore, the tax impact occurs at the moment when said amounts were declared as income.

The ruling concludes that, to correct the situation, one must request the amendment of the self-assessment corresponding to the period in which said earnings were originally included, regardless of the date on which the refund to the payer is made.

What this means for you

If you have declared income from pensions that subsequently turn out to be undue, you cannot simply deduct that amount in your Personal Income Tax (IRPF) return for the current year. Doing so would constitute an error in the fiscal year, as the income did not legally exist in the period in which the reimbursement was made.

This scenario directly affects natural persons who find themselves in the need to reimburse amounts to the entity paying the pension. The applicable regulations in this case are based on the Personal Income Tax Law (Law 35/2006) and the General Tax Law (Law 58/2003).

What should be done

In this situation, the appropriate procedure is not the reduction of income in the current fiscal year, but rather the amendment of the tax return for the year in which the undue pension was received. It is necessary to precisely identify the affected fiscal year to request the correction of the self-assessment. Since every financial situation presents particularities, it is necessary to assess each case individually to ensure that the amendment procedure complies with current regulations.