The definitive text of the future housing law is ready and everything indicates that it will see the green light in Congress in the coming weeks, after it was approved yesterday in Commission. From then on, when the regulations are published in the BOE, a wide range of measures of various kinds designed to contain or lower rental prices in Spain will come into operation. One of them is based on the implementation of juicy personal income tax benefits aimed at landlords, with a maximum discount of 90% on rental income. With these deductions, landlords will be able to save up to 500 euros a year if they lower the price of the home by more than 5%, the minimum set out in the regulation to benefit from the most succulent discount.
The Registry of Fiscal Advisors (REAF) of the General Council of Economists has prepared a simulation to quantify the savings that three profiles of landlords would achieve when applying the reduction. The chosen example starts from a house with a purchase price of 300,000 euros that is rented for 1,000 euros per month (12,000 euros per year). If a 6% discount is applied – a necessary condition to be able to access the maximum bonus – the income obtained from the lease goes to 11,280 euros per year, a drop of 720 euros.
In the three cases analyzed, this loss of 720 euros is less than the savings that landlords would achieve in personal income tax by applying the maximum deduction allowed in the regulations. Specifically, a single owner, without children and under 65 years of age with a total income of 18,000 euros would save 795.55 euros in tax, leaving a positive net balance of 75.55 euros per year after subtracting the rent that is no longer received with the sale.
Another landlord with the same profile, in this case with an annual income of 26,000 euros, would go from paying 5,037.9 euros in personal income tax to 4,032.3 euros after benefiting from the 90% bonus, thereby saving 1,005.6 euros. In this case, the net positive result is 285.6 euros per year.
The last case is that of the landlord with total income per year of 60,000 euros. This taxpayer, after applying the maximum bonus, would pay 15,096.34 euros in tax, about 1,240 euros less, which would leave a positive balance of 520 euros.
The three profiles of landlords chosen to carry out this simulation agree with the fiscal reality of taxpayers in Spain. According to the latest data from the IRPF statistics of the Tax Agency, corresponding to the year 2020, 29% of the owners of the country who apply the reduction for leasing properties for housing range between 30,000 and 60,000 euros. . It is the majority section by far. Below are incomes between 12,000 and 21,000 euros (17% of landlords who resort to the reduction) and those that move between 21,000 and 30,000 euros per year (16%).
The discounts contemplated by the housing law are provided only for those landlords with physical personality who have their properties in hot market areas, a categorization that will depend on the corresponding local and regional government. That is, the owners may only be entitled to deductions when an area is declared as stressed.
From here, the housing law completely redesigns the tax structure of the current bonuses. The discount currently in force, of 60% in general, will be reduced by 10 percentage points to 50%. This cut is intended to encourage landlords to move, since landlords who want to receive greater discounts will have to meet a series of requirements.
The greatest tax advantage, 90%, will occur when “a new contract has been formalized by the same landlord” on a home located in a stressed residential market area, “in which the initial rent has been lowered by more than one 5% in relation to the last rent of the previous lease of the same home, ”explains the official text.
There will be another smaller bonus, 70%, when the taxpayer rents the house for the first time and the tenant is between 18 and 35 years of age or “when the tenant is a Public Administration or non-profit entity”.
The last deduction, 60%, will occur when the home has been the subject of a rehabilitation action “that would have ended in the two years prior to the date of the lease contract.”
These reductions, the regulations maintain, will only be applicable to positive net returns that have been calculated by the taxpayer in a self-assessment submitted before a data verification procedure has been initiated.
More stressed areas
In order for the IRPF bonuses to become effective, it is necessary for the competent administration to declare an area as stressed. This categorization, in addition to the new deductions, also opens the door to limiting the prices of all rentals, as well as setting the number of owned properties necessary to be considered a large holder at five.
The new text that shapes the regulations substantially relaxes the criteria necessary for an area to be considered stressed. Thus, the declaration can be made effective when only one of the two established conditions is met: that the financial effort of the sale or rental exceeds 30% of the average income in the area or that the price of the house in the five years prior to the declaration has experienced a cumulative growth rate at least three percentage points higher than the regional CPI.
This wording opens the door for a large majority of landlords to be subject to future tax incentives, whenever their regional and local governments so wish. According to various recent studies, 61% of all households in Spain would meet one of the two requirements. In provinces such as the Balearic Islands or Malaga, the figure would exceed 90%.
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