Majority of Spanish Landlords to Gain from Proposed Tax Exemption on Rental Income
Recent analyses indicate that approximately 65% of residential landlords in Spain could benefit from a proposed 100% exemption on income tax for rental earnings. This initiative is currently under consideration by the government, which aims to alleviate housing market pressures and enhance accessibility for working-class individuals, particularly the youth.
Prime Minister Pedro Sánchez announced the introduction of a series of measures aimed at improving housing availability last week. Among these is a total exemption from income tax for property owners who adhere to the rent limits set by the Ministry of Housing's Price Reference Index, which is significantly lower than current market rates. Although specific details regarding this tax exemption are still being finalized, the preliminary framework suggests that many landlords could reduce their rents. This would result in an initial drop in income, which would be offset by the subsequent tax savings.
According to projections from the technicians' union of the Ministry of Finance, Gestha, nearly two-thirds of landlords would find it financially advantageous to comply with the official index, with average annual savings ranging from EUR67 to EUR347. These estimates were derived from an analysis of annual income tax statistics published by the Tax Agency, which detail the average rental incomes across various income brackets, combined with data from the National Statistics Institute's household budget surveys.
Gestha's analysis suggests that approximately 350,000 landlords earning between EUR12,000 and EUR21,000 annually could save about EUR67.65 per year by conforming to rental reduction requirements. Meanwhile, around 357,000 landlords with annual earnings between EUR21,000 and EUR30,000 could see tax reductions of approximately EUR184.47. Additionally, approximately 687,000 landlords earning between EUR30,000 and EUR60,000 could benefit from an annual tax savings of EUR347.23. In total, this could potentially impact nearly 1.4 million landlords out of over two million who rent out their properties as primary residences.
Gestha's preliminary calculations also indicate that the 466,000 landlords with total incomes below EUR12,000 would likely find no financial incentive to lower their rents, as they do not pay taxes and are not required to file tax returns. Similarly, landlords earning above EUR60,000 typically lease out more expensive properties and would see limited benefits from the proposed tax exemption. Data from the Tax Agency reveals that among those earning between EUR60,000 and EUR150,000 annually, approximately 238,000 landlords would lose around EUR540 annually if they opted for the 100% exemption. Furthermore, in the higher income brackets, there are fewer landlords, with just over 50,000 possibly facing losses of up to EUR13,800 in extreme cases.
It is essential to note that these estimates from Gestha apply to individual tax declarations without considering personal or family circumstances. The calculations do not factor in deductions from the taxable base, such as pension plan contributions or other allowable tax deductions. As a result, actual savings could vary significantly based on the final wording of the legislative proposal, which may also restrict tax benefits for certain categories of landlords.
While the government's proposed measure is not yet finalized, it echoes previous tax reductions introduced under the housing law, which permitted regional governments to designate areas experiencing high rental demand. This past legislation offered a range of tax discounts to encourage affordable rental pricing. Initially, a general reduction in income tax for landlords, set at 60%, was decreased to 50% under this law, with potential increases up to 90% for landlords who reduced rents by at least 5% compared to prior contracts. However, for landlords to take advantage of these incentives, regions must declare areas as high demand, a step that has only been taken by Catalonia, as other regions, predominantly governed by the Popular Party, have stalled the implementation of this law. The new proposal aims to circumvent this deadlock by offering nationwide tax benefits, which could have a significant impact on public finances, although the government has yet to estimate the overall financial implications.
