7 June, 2017

Impact of the Spanish Personal income tax on real estate investments profitability

Since we are nowadays immersed in the Spanish Personal income tax filing season, we deem it convenient to remind you which is the treatment, in terms of this tax, foreseen in Spanish regulations on the property rental or the real estate holding. The tax cost of rentals or of the maintenance of a secondary residence impacts de profitability of this type of investments, currently favoured by a continued context of growth.

✔ The rental of real estate properties has to be declared by the owner as taxable income, under the box corresponding to real estate revenues. All expenses incurred necessary for the obtainment of the rental income are tax deductible (such as the Local tax on the property – so- called IBI – insurance or community expenses, for example). Interest and financial expenses, together with repair expenses, cannot jointly exceed, for each real estate property, the amount of income obtained. The excess can be deducted in the four subsequent years, subject to this same limit.

✔ Once the net income has been calculated, it can advantageously be reduced by 60%. The Spanish Central Economic – Administrative Court (TEAC) has recently resolved (on March 02, 2017) that this reduction only applies when the taxpayer voluntarily declares such income by filing a tax return, either within the legal deadline or out –of – term but always before the start of any tax audit or review process in which such income is included.

✔ Another important point to take into account is the different treatment applying to a touristic property rental. In this case, expenses shall be deducted in proportion to the rental period. Besides, the Spanish General Directorate of Taxes holds the view that the 60% reduction does not apply to a seasonal rental.

✔ In any case, while the property remains unoccupied and providing that it does not constitute the taxpayer’s permanent residence and it is not affected to an economic activity, it implies a deemed income for the owner, which is taxable at the general tax table rates, based on 2% of the property’s cadastral value or 1.1% if the cadastral value has been reviewed in the last 10 years, without any possibility to deduct expenses.


At PBS we are experts in taxes in Spain, obligations such as VAT, Withholding Tax and Corporate Income Tax.


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