Withdrawing a pension plan in Spain may offer significant tax advantages in certain cases, especially when there are contributions made before 2007.
However, the 40% reduction does not apply automatically or in every situation. To benefit from this regime, it is essential to understand the requirements, the form of withdrawal and the deadlines currently in force.
Tax benefits of withdrawing a pension plan.
The withdrawal of a pension plan continues to offer significant tax advantages in certain cases. However, the regulations and administrative criteria have evolved in recent years, so it is important to understand the rules currently in force.
The withdrawal of a pension plan is taxed as employment income and may benefit from a 40% reduction, but this reduction only applies to the withdrawal corresponding to contributions made up to 31 December 2006, provided that the withdrawal is received in the form of a lump sum.
Requirements to apply the 40% reduction.
In order to benefit from this regime, the following requirements must be met:
- The amounts withdrawn must correspond to contributions made up to 31 December 2006.
- These amounts must be received in the form of a lump sum payment, or as a capital withdrawal of the corresponding benefit.
- The withdrawal must be made within the legally established period, that is, in the tax year in which the contingency occurs or in the following two tax years.
If any of these requirements are not met, the 40% reduction will not apply.
Important:
The 40% reduction does not apply to the entire amount withdrawn, but only to the part corresponding to contributions made up to 31 December 2006, provided that the withdrawal is received as a lump sum and within the legal deadline.
Deadline to apply the tax reduction.
One of the most common mistakes is to think that the reduction can be applied at any time after the contingency occurs, for example retirement. In reality, the regulations establish that it may only be applied if the withdrawal is made in the tax year in which the contingency occurs or in the following two tax years. Once this period has passed, the right to the reduction is lost.
One pension plan or several plans: how the reduction applies.
If there is only one pension plan, the reduction may only be applied once for each contingency.
However, if the taxpayer has several pension plans, it is possible to apply the reduction to each of the plans, even if the withdrawals take place in different tax years, provided that the legal time limits are respected.
Before withdrawing the plan, it is advisable to request a clear breakdown from the managing entity of the contributions made before 31 December 2006. This information will be key to correctly calculating the part that may benefit from the 40% reduction.
Withdrawal of contributions that are ten years old.
Since 1 January 2025, it has been possible to withdraw contributions that are at least ten years old, without the need to be retired or for any other contingency to arise.
The Directorate-General for Taxation, in its Binding Ruling V2524-24 of 10 December 2024, has confirmed that this new withdrawal scenario may also benefit from the 40% reduction, provided that the legal requirements mentioned above are met.
It also clarifies that, in these cases, the period for applying the reduction begins in the tax year in which the contributions reach ten years of age and the participant expressly requests the withdrawal, with that tax year and the following two tax years available to benefit from the transitional regime.
Conclusion: planning before withdrawing a pension plan.
The regime offers an important opportunity for tax savings for those who made contributions before 2007. However, the way and the timing of the withdrawal of the plan can make a very significant tax difference.
If you are considering withdrawing your pension plan, it is advisable to carry out prior tax planning in order to determine the most efficient option and avoid losing a tax benefit which, in many cases, can represent a very significant saving.
ÁLVARO MORALES SOUSA
PARTNER – LAWYER
CUSTOMS REPRESENTATIVE
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