Transitional regime for the reduction of life insurance contracts concluded before December 31, 1994

Note: The following section includes an example of the application of this transitional regime .

Regulations: Transitional provision fourth Law Personal Income Tax and art. 93.5 Personal Income Tax Regulation

In accordance with the repealed Law 18/1991, Personal Income Tax , the benefits derived from life insurance contracts generated increases or decreases in assets (except those from capitalization operations and those insurance contracts that did not incorporate the minimum component of risk and duration determined in article 9 of the Personal Income Tax Regulations in force at that time) and the reduction percentages that were applicable to these increases and decreases were applicable. established the eighth transitional provision of the aforementioned Law 18/1991.

With the entry into force on January 1, 1999 of Law 40/1998, of December 9, this tax treatment disappears, but a transitional regime is introduced that maintains the application of these reduction percentages to the part of the performance corresponding to premiums paid prior to December 31, 1994. Said transitional regime has been maintained in the current Personal Income Tax Law in the terms that we will discuss below.

When deferred capital is received, the part of the total net income corresponding to premiums paid prior to December 31, 1994, which would have been generated prior to January 20, 2006 , may be reduced in the following way:

1. Calculation of total net return

The part of the total net income obtained that corresponds to each of the premiums paid prior to December 31, 1994 will be determined.

To do this, said total return obtained will be multiplied by the weighting coefficient resulting from the following quotient:

• In the numerator, the result of multiplying the corresponding premium by the number of years elapsed since it was paid until the payment was collected.

• In the denominator, the sum of the products resulting from multiplying each premium by the number of years elapsed since it was paid until the payment was collected.

In summary:

(Premium x number of years elapsed until collection) ÷ ∑ (each premium x number of years elapsed until collection)

2. Calculation of reducible net return

The part of the net income corresponding to each of the premiums paid prior to December 31, 1994, which has been generated prior to January 20, 2006, will be determined.

For this purpose, the amount resulting from the operation mentioned in number 1 will be multiplied. above by the weighting coefficient resulting from the following quotient:

• In the numerator, the time elapsed between the payment of the premium and January 20, 2006.

• In the denominator, the time elapsed between the payment of the premium and the date of collection of the benefit.

In summary:

Weighting coefficient = Days elapsed since premium payment until 01-20-2006 ÷ Days elapsed between premium payment and collection date

3. Joint maximum limit and applicable reduction percentages

The total amount of the deferred capital corresponding to the life insurance policies to whose net return the transitional regime would have been applied, obtained from January 1, 2015 until the moment of temporary allocation of the deferred capital, will be calculated, distinguishing the following situations: effects of the application of reduction percentages (also called abatement coefficients):

1. That the calculated amount (including the amount of the deferred capital obtained to which the transitional regime is intended to be applied) is less than 400,000 euros .

   In this case it will be applied to each of the parts of the net income calculated in accordance with the provisions of number 2. above the reduction percentage of 14.28 percent for each year elapsed between the payment of the corresponding premium and December 31, 1994.

   When more than six years have passed between said dates, the percentage to be applied will be 100%.

2. That the calculated amount (including the amount of the deferred capital to which the transitional regime is intended to be applied) is greater than 400,000 euros, but the amount of the deferred capital obtained to which it is intended to apply the transitional regime is less than 400,000 euros .

   In this case, the reduction will be made to each of the parts of the net income generated prior to January 20, 2006 that proportionally correspond to the part of the deferred capital that, added to the deferred capital obtained previously, does not exceed 400,000 euros.

3. That the amount corresponding to the deferred capital obtained previously is greater than 400,000 euros .

   In this case no reduction will be made.