B Law & Tax
09 June 2023

Tax advisor: New reductions in the Personal Income Tax related to the rental of housing

Last May 25, Law 12/2023, which includes tax measures related to rental housing, was published in the Official Gazette. As from January 1, 2024, the percentages of reduction of the positive net yield derived from the rental of housing are modified. The new reductions are as follows:

  1. 90% reduction if the following is met:

– A new lease contract has been formalized by the same lessor in a stressed residential market area.

– The price agreed in the new contract is at least 5% lower than the last rent of the previous contract.

  1. 70% reduction in the following cases:

– The lessor rents for the first time a dwelling in a stressed residential market area and the lessee is between 18 and 35 years old.

– The lessee is a Public Administration or non-profit entity that allocates the housing for social renting or to people in a situation of economic vulnerability.

  1. Reduction of 60% if the dwelling has been subject to rehabilitation in the two years prior to the signing of the contract.
  2. Reduction of 50% in any other case.

In order to analyze the real effect of the regulatory modification, it is necessary to make a distinction between the communities that declare a stressed residential market area and the territories where this declaration is not made.

In those areas designated as stressed residential market zones, increased reductions of 90% and 70% may be applied. However, the requirements for this are restrictive and limit the freedom to establish and increase property rents.

On the other hand, the 60% reduction will be limited to cases of housing rehabilitation, which means that in many cases the general reduction will be 50%. These limitations will also apply in stressed areas in accordance with Article 17, paragraph 6, of the Urban Leasing Law (LAU), which establishes restrictions on rent increases.

Based on the new wording of Article 23 of the Personal Income Tax Law, if the limitations established in the aforementioned Article 17, paragraph 6, of the LAU are not respected, no reduction will apply. This differs from the previous situation in which it was only required that the rental be for residential use.

B Law & Tax International Tax & Legal Advisors.


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