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Practical manual for Income Tax 2024. Part 1

C 2. Benefits received in the form of capital derived from other private social security systems (pension plans, social security mutual societies and insured pension plans)

Regulations: Twelfth Transitional Provision of the LawPIT

Note: As of 1 January 2015, the application of the reductions under the transitional regime is limited to benefits in the form of capital received within the time periods indicated in section " Time limits for the application of the reductions under the transitional regime ".

Recipients of benefits arising from contingencies occurring after January 1, 2014, may apply the reduction regime in force on December 31, 2006, but only to the part of the benefit corresponding to contributions made up to that date (December 31, 2006).

This regime consists of the possibility of applying the following reductions:

a. 40% reduction in the following cases:

  • When more than two years have passed since the first contribution.

  • When they correspond to disability benefits, regardless of the period of time elapsed since the first contribution.

b. A 50% reduction for benefits received in the form of capital by persons with disabilities from social security systems established in their favour, provided that more than two years have passed since the first contribution.

Clarifications:

  • The reduction applicable to benefits in the form of capital derived from pension plans or insured pension plans refers to those received in respect of the same contingency .

    When benefits are received from various pension plans, the 40 or 50 percent reductions indicated above may be applied to all amounts received in the form of a lump sum (single payment) in the year in which the corresponding contingency occurs and in the two following years, and not just in one year, for the part corresponding to contributions made up to December 31, 2006. See the Resolution of the Central Economic-Administrative Court (TEAC), dated October 24, 2022, Claim number 00-08719-2021, issued in an extraordinary appeal for the unification of criteria.

  • In the event of receiving in the form of capital benefits derived from a pension plan and from a social security mutual fund for the same contingency, the application of the reduction will refer to the benefit from the pension plan and from the social security mutual fund independently.

  • In the case of retirement or disability benefits received from social security mutual funds, the reduction percentage is applied to the part of the total amount received corresponding to contributions made until December 31, 2006 (for benefits derived from contingencies that occurred after January 1, 2013), except in those cases in which the total income from work is determined by the difference between the amount received and the contributions that could not have been subject to reduction or decrease in the taxable base of the PIT .

  • If the benefits from pension plans are received in a mixed form (income and capital), the beneficiary may freely identify or decide which part of the benefit received in the form of capital corresponds to contributions made before December 31, 2006, including their profitability, and which corresponds to contributions made after this date.

Case of partial redemption of a pension plan in exceptional cases of disposition of consolidated rights and, subsequently, due to retirement

Article 9 of the Regulation on pension plans and funds, approved by Royal Decree 304/2004 of 20 February, establishes that, exceptionally, the rights consolidated in pension plans may be exercised in whole or in part in cases of serious illness or long-term unemployment in accordance with the provisions of this article, provided that this is expressly provided for in the specifications of the pension plan and subject to the conditions and limitations established therein.

The possibility of applying the 40 percent reduction is conditional on the benefits being received within a certain period, the end of which depends on the fiscal year in which the contingency occurs.

For these purposes, the exceptional liquidity situation must be understood to have occurred when all the requirements established by pension plan regulations are met in order to be able to exercise the vested rights (being legally unemployed, having exhausted unemployment benefits at their contributory level or not being entitled to them, and being registered as a job seeker). In the case of retirement, it should be understood that, as a general rule, the retirement contingency occurs at the time of accessing retirement under the corresponding Social Security system.

Therefore, since retirement is a contingency distinct from the exceptional cases of disposition of vested rights in pension plans, the aforementioned 40% reduction is applicable in both cases, except in cases where, for tax purposes, the collection of the retirement benefit is deemed to be early.