Savers may apply the 40% reduction when redeeming pension plans

The redemption of pension plans constitutes earned income for Personal Income Tax (IRPF) purposes. However, the regulations provide for a transitional regime that allows for a reduction in the tax burden under certain circumstances related to the seniority of the contributions.

What the DGT has ruled

The Dirección General de Tributos (DGT) has confirmed that, when pension plan benefits are received as a lump sum, it is possible to apply a 40% reduction to the portion of the benefit corresponding to contributions made until December 31, 2006. For this benefit to be applicable, two fundamental requirements must be met:

• More than two years must have elapsed since the first contribution to the plan.
• The benefit must be received within the period established in the twelfth transitional provision of the IRPF Law.

In the specific case of a retirement contingency occurring during the year 2025, the maximum period to benefit from this transitional regime ends on December 31, 2027.

What it means for you

If you are the holder of a pension plan with a long-term savings history, part of your capital could be taxed with a significant tax benefit. This right is not lost over time, but it is subject to a strict calendar. It is essential to identify what percentage of the accumulated capital comes from contributions made before the current regulations came into force to correctly calculate the taxable base.

What you should do

It is necessary to verify the date of the first contribution and the breakdown of the accumulated funds with your financial institution. Since the period to apply this reduction is limited, especially for those retiring in the coming years, it is advisable to analyze the optimal moment for redemption to maximize tax savings. It is recommended to assess each particular situation to ensure compliance with legal deadlines and the requirements of the IRPF Law.