Taxation of pension plan benefits and wages as employment income

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the tax nature of amounts received by taxpayers as pension plan benefits. This pronouncement clarifies the treatment these amounts must receive in the Personal Income Tax (IRPF) return.

What the DGT has ruled

The binding ruling establishes that pension plan benefits, as well as amounts received under the assumption of article 8.8 of the recast text of the Law on the Regulation of Pension Plans and Funds, are considered employment income. According to the criteria, both the benefit and salary earnings must be included in the general taxable base of the IRPF, in accordance with the provisions of articles 45 and 48 of the Personal Income Tax Law (LIRPF).

What it means for you

For individuals, this ruling confirms that the redemption of a pension plan does not have a different treatment compared to income derived from employment activity. As they are considered employment income, these amounts are added to the taxpayer's other salary income, which may increase the general taxable base and, consequently, the tax rate applicable in the income tax return.

• Pension plan benefits are not considered income from movable capital.
• The redemption of pension funds is taxed in the same way as a salary.
• Inclusion in the general taxable base is mandatory according to current regulations.

What is advisable to do

Since the redemption of these amounts directly impacts the general taxable base, it is necessary to assess your particular tax situation before proceeding with the redemption. The way the benefit is received can influence the final tax burden for the year. It is recommended to analyze the amount of the redemption and the forecast of other income in the same period to understand the impact on the IRPF. Each situation presents particularities that require a detailed analysis.