Example: application of the transitional regime for the reduction of life insurance contracts concluded before December 31, 1994
Don BCA On October 10, 2021, coinciding with his retirement date, he received a benefit in the form of capital of 70,000 euros, derived from a retirement plan corresponding to individual life insurance contracted with insurance entity "Z".
The total amount of premiums paid to said insurance entity amounted to 67,828.28 euros, at the rate of an annual premium of 1,500 euros, increasing by 3 percent annually and paid on March 1 of each of the years between 1993 and 2021, both inclusive.
Determine the reduced net return on movable capital derived from the aforementioned individual life insurance.
1. Determination of full and net performance.
In accordance with the provisions of article 25.3 a) of the Personal Income Tax Law , the difference between the benefit received and the premiums paid is considered return on movable capital: 70,000.00 – 67,828.28 = 2,171.72
2. Application of the transitional reduction regime.
In accordance with the transitional regime for life insurance contracts generating increases or decreases in assets prior to January 1, 1999, contained in the fourth transitional provision of the Personal Income Tax Law, when a deferred capital is received, at the Part of the net income corresponding to premiums paid prior to December 31, 1994, which would have been generated prior to January 20, 2006, will be reduced as follows:
Part of the total net income that corresponds to each of the premiums paid before 12-31-1994.
Pay day Premium amount Time until collection (years) Time until collection (days) Weighting coefficient (*) Premium Yield (**)
Notes to the table:
(*) The determination of the weighting coefficient is the result, rounded to the seventh decimal, of the following fraction:
(Premium x number of years elapsed until collection) ÷ ∑ (each premium x number of years elapsed until collection)
In the example, for the premium paid on 03-01-1993, said fraction is the following: (1,500 x 28.63) ÷ 852,919.49 = 0.0503506
For the premium paid on 03-01-1994, said fraction is the following: (1,545 x 27.63) ÷ 852,919.49= 0.0500497 (Back)
(**) Once the weighting coefficient of each premium has been applied to the total insurance return (2,171.72), the return corresponding to each of the premiums is obtained, the result of which is recorded in the corresponding column.
For the premium paid on 03-01-1993, the corresponding return will be equal to: 2,171.72 x 0.0503506 = 109.35
For the premium paid on 03-01-1994, the return will be equal to: 2,171.72 x 0.0500497= 108.69 (Back)
01-03-93 1,500.00 28.63 10,450 0.0503506 109.35 01-03-94 1,545.00 27.63 10,085 0.0500497 108.69
Part of the total net income corresponding to each of the premiums paid before 12-31-1994 generated before 01-20-2006.
Notes to the table:
(*) To determine the part of the benefit that, corresponding to each of the premiums paid prior to December 31, 1994, has been generated before January 20, 2006, the yield per premium will be multiplied by the weighting coefficient that results of the following quotient:
In the numerator, days elapsed between the payment of the premium and January 20, 2006.
In the denominator, days elapsed between the payment of the premium and the date of collection of the benefit.
In our example, for the premium paid on 03-01-1993, said fraction is the following: 4,708 ÷ 10,450= 0.4505263
For the premium paid on 03-01-1994, said fraction would be 4,343 ÷ 10,085 = 0.4306396 (Back)
(**) The reducible yield, that is, the yield generated until 01-20-2006, is determined by the result of multiplying the premium yield by the weighting coefficient determined as indicated in note (1) above. (Back)
Premium Yield Years up to 12/31/1994 Days until 01/20/2006 Weighting coefficient (*) Performance until 01/20/2006 (**) 109.35 2 4,708 0.4505263 49.27 108.69 1 4,343 0.4306396 46.81
Performance susceptible to reduction and applicable reduction.
Performance until 01-20-2006 (*) Reduction percentage (**) Reduction amount
Notes to the table:
(*) Joint maximum limit: The maximum amount of the capital received will be 400,000 euros, a limit that will be applied jointly to all amounts of deferred capital obtained from January 1, 2015 until the moment of temporary allocation of the capital (including the amount to whose return the abatement coefficients for the transitional regime).
In the present case, the amount of 70,000 euros corresponding to the benefit received on October 10, 2021 (the only deferred capital, obtained by the taxpayer from January 1, 2015 until the moment of temporary allocation of the deferred capital, to which result of application of the transitional regime) is less than 400,000 euros, so the reduction coefficients will be applied to all the reducible income generated until 01-20-2006. (Back)
(**) The reduction percentage is the result of multiplying 14.28 by 100 for each year, rounded by excess, between the payment of the premium and December 31, 1994. (Back)
49.27 28.56% 14.07 46.81 14.28% 6.68 Total reduction applicable - 20.75
3. Determination of the net return to be included in the tax base of savings.
The net return to be included in the savings tax base is the difference between the total net return and the reduction resulting from the application of the transitional regime: (2,171.72 – 20.75) = 2,150.97 euros