Can I apply the reduction for a rented property to my Personal Income Tax (IRPF)?
If you own a property and rent it out, you should be aware that renting a property may give you the right to apply for a reduction in your personal income tax (IRPF).
See here the requirements that must be met to qualify for this incentive, both in the IRPF for 2023 and from 2024 onwards.
Personal income tax reduction 2023
60% reduction for renting your home by 2023
Rental housing
If during the year 2023 you rented a property you own, remember that in the IRPF of that year (whose declaration you can present until 1 July 2024) a reduction of 60% is applicable on the positive net yield received for said rental; however: provided that certain requirements are met.
Formalisation date
This reduction is applicable in the IRPF of 2023 regardless of the date of formalisation of the rental contract. It is therefore also applicable to contracts signed between 26 May and 31 December 2023, to which a new system of reductions will apply from the 2024 IRPF (see below).
Below are the requirements that must be met in order to benefit from this 60% reduction in the 2023 IRPF…
Requirement 1: real estate income
From real estate capital
The first requirement that must be met in order to be able to apply this incentive is that the income obtained is classified as income from real estate capital.
If they are considered to be income from economic activities, it is not possible to apply the reduction in personal income tax.
In this case, the net yield must be quantified in accordance with Corporate Income Tax regulations, and no reduction is applicable.
Employed person
The activity of renting property is considered to be an economic activity when at least one person is employed with a full-time employment contract to carry it out.
In addition, the number of properties rented and the amount of work this generates must be sufficiently high to justify the hiring of such an employee.
Tourist rental is also considered to be an economic activity when it is not limited to the mere provision of the properties and is therefore complemented by the provision of services typical of the hotel industry: restaurant, cleaning, laundry ….. The 60% reduction cannot be applied to these rentals either.
Requirement 2 : permanent housing
Destination of the rented accommodation
A further requirement for the reduction to apply is that the primary purpose of the rental must be to meet the tenant’s permanent housing needs.
Consequently, the reduction does not apply to the rental of holiday flats (even if no hotel services are provided), where the tenant does not establish his or her permanent residence but only spends a few months of the year.
Rentals to students
The property is not considered to be used as a permanent residence (and therefore does not qualify for the 60% reduction in personal income tax) when it is rented to students or teachers only during the months of the school year.
The LAU itself classifies such rental contracts as “for use other than as a dwelling”, and the regime applicable to rental contracts for permanent residence does not apply to them.
The tax authorities have considered that, if a flat is rented to students for a period of more than one year, it can be understood that the property will be their habitual residence during that period and is not a seasonal rental, so that, in that case, the reduction does apply.
Requirement 3 : declared income
In the self-assessment
On the other hand, remember that from 2021 the rental reduction is only applicable to positive net income from real estate capital that meets the following conditions:
That they have been effectively included in the self-assessment of the IRPF.
And that this self-assessment has been submitted before the Inland Revenue has initiated a verification procedure (either a verification of data, a limited verification or an inspection) that includes this income.
Returns for 2020 and earlier are not affected. Even if the Inland Revenue now initiates a verification of any of those years, if the lessor submits a supplementary self-assessment or informs the Inland Revenue of the net income obtained, the latter must apply the reduction in its regularisation.
Requirement 4: resident lessor
Resident in Spain
A fourth requirement is that the lessor resides in Spain and is a taxpayer of personal income tax. According to current regulations, non-residents who own property in Spain, and must declare such rentals through the IRNR (by filing form 210), cannot apply the reduction for rentals.
In fact, in general, non-residents cannot even deduct the expenses incurred for rentals (property tax, depreciation, repair costs, etc.). Only landlords residing in another EU country, Liechtenstein, Norway or Iceland are entitled to deduct the costs incurred (but without reductions).
In any case, please note that a few years ago the European Commission initiated an infringement procedure against Spain (currently underway) to amend the IRNR Law, considering that denying the 60% reduction to investors from the EU, Liechtenstein, Norway and Iceland is discriminatory and restricts the free movement of capital.
It is therefore possible that in the future the EU Court will force Spain to correct this situation.
Personal income tax reduction 2024
Reduction of 50% or more
Housing Act
The new Housing Law that came into force in May last year has introduced changes to this reduction from the IRPF of 2024. Thus, the fixed reduction of 60% that was applicable until the IRPF of 2023 will now be between 50 and 90%, depending on the specific situation (for more information, please see the following link).
Contracts affected
The new regime of reductions applicable as from the IRPF of 2024 affects housing rents formalised from 26 May 2023 (the date on which the Housing Law came into force).
Those formalised before that date will continue to enjoy the 60% reduction until they are finalised.
Although the Inland Revenue had initially indicated on its website that contracts formalised between 26 May and 31 December 2023 would continue to benefit from the 60% reduction from 2024 onwards, it has recently changed its interpretation.
From the IRPF of 2024, this 60% reduction will only exist for contracts signed until 25 May 2023.
Requirement 5: Stressed areas and price
Price cap
The Housing Act has also established a final requirement that must be met by new contracts signed in municipalities classified as ‘stressed residential areas’.
In order to benefit from any of the existing reductions (from 50 to 90%), the price of these contracts must not exceed the price of the last rent of the rental contract that had been in force in the last five years after applying the annual rent update clause of the previous contract.
As an exception, the rental price may exceed the previous limit by up to 10% (without losing the reduction) in certain special cases: for example, when renovation work has been carried out or investments have been made to improve energy efficiency or accessibility, or when the new contract is for ten years or more.
Stressed areas
For the time being, only several municipalities in Catalonia have been declared as stressed areas.
In order to apply the reduction for rental housing, it is necessary, among other requirements, that income from real estate capital is declared, that the tenant’s permanent housing needs are covered, and that the rent is declared in the self-assessment.
