Do not allow subletting a house of your property
If you are a tax resident in Spain and are going to rent a house of your property for regular (non-tourist) housing use, it is highly recommended that you establish in the lease a clause that prevents the tenant from totally or partially subletting his home, as well as compensation in case of non-compliance…
With the times that run in subletting, it is fashionable. Who hasn’t talked about renting homes by rooms?
Many tenants legally or illegally sub-rent a house or rent by rooms to get a return.
And the owner of the house doesn’t even know.
In this article we are going to talk about the tax aspect of subletting a home you own, not the legal aspect.
In fact, if you are the owner of a house and allow the sublease of it, this harms you fiscally.
Let’s see why.
Effects on the personal income tax of subletting a home of your property
Reduction for housing rental in the personal income tax
If you are a tax resident in Spain and make Rent, when renting a home, consider stating in the contract that the tenant is prohibited from subletting said housing, as this could affect your taxation in the personal income tax.
In this link the NEWS IN THE REDUCTION FOR RENTAL OF HOUSING in IRPF.
Remember that tourist homes are not entitled to the reduction. Only those of habitual housing use. Indeed
If you are renting it as a home for permanent use, and the Tenant is subletting it, the house does not fulfil the purpose for which it was rented (and for which a reduction is being applied).
The Treasury could prevent you from applying the reduction of between 50 and 90% existing in these cases. However
If the tenant sublets to people who are going to use the property as their permanent residence, there are arguments to defend that the reduction is still applicable.
However, it is better not to run the risk of losing the incentive and avoid litigation with the Treasury.
Let’s see an example of subletting in the IRP
You are going to rent a house for which you will obtain an annual net return of 9,000 euros, being able to apply a 50% reduction. Like This
In the event that the tenant sublets the house and you cannot enjoy the reduction, you run the risk that each year you will receive 2,025 euros less for the rent:
| Concept | Without subletting | With subletting |
| Net yield | 9.000 | 9.000 |
| 50% reduction | -4.500 | 0 |
| Taxable income | 4.500 | 9.000 |
| Personal Income Tax Cost (45%) (1) | 2.025 | 4.050 |
| Annual net | 6.975 | 4.950 |
(1) Considering that its marginal rate in personal income tax is 45%.
Sublet by rooms
If the sublease is partial (for example, it affects a room), what is indicated is applicable only to the rents proportional to the part of the sublet house:
- For the non-sublet part, the income received continues to enjoy a reduction.
- The Treasury could deny the reduction of the incomes corresponding to the part of the house that is sublet.
Alternatives to subletting
Increase the rent (logically)
An alternative to prevent sublease is to agree that, in case it occurs, there is an increase in rent that compensates for the higher tax costs that you will have to bear.
If you are entitled to a 50% reduction in the amount charged for rent, you can use the following formula to calculate that income increase:
(Annual net income × Marginal rate of personal income tax × 50%)
——————————————–
Marginal rate of personal income tax
Rent increase
In the example above, the application of this formula involves an annual increase in income of 3,682 euros [(9,000 × 0.45 × 0.5)/(1 – 0.45):
| Concept | Without subletting | With subletting |
| Net yield | 9.000 | 12.682 |
| Reduced yield 50% | 4.500 | 12.682 |
| Personal income tax cost (45%) | 2.025 | 5.707 |
| Annual net | 6.975 | 6.975 |
And here goes the worst, and I’m sure I didn’t know it.
Effects on the VAT of subletting
Very important: subletting is NOT exempt from VAT
Likewise, you will be obliged to pass on VAT at 21% from the beginning of the sublease.
Since your tenant will allocate the property to a use other than housing, the VAT exemption for subletting will disappear.
This will be applicable to the entire rental price, regardless of whether you sublet the entire house or only one room.
The tenant must notify the sublease
To avoid this risk, establish in the contract that in case of sublease the tenant must notify you of this circumstance a certain notice (ten days, for example) and that the rental price will be increased by the amount of VAT.
Also indicate that, if the tenant does not fulfil his duty to notify you, he must compensate him for the applicable taxes, surcharges and penalties.
In summary
In the event that the tenant sublets the house, you could lose the right to apply the 50% reduction for housing lease in your personal income tax; in addition, you will be forced to pass on VAT on the rent
