Taxes paid by taxpayers are one of the main ways in which States are financed. In relation to the concept of the collection, there is a financial instrument designed to allow each taxpayer, according to their status, to benefit from tax deductions in order to pay less tax for contributing to the fulfilment of certain objectives.
Tax deductions on housing in Spain can provide financial relief for both homeowners and tenants. These deductions aim to incentivise home ownership and support people who choose to rent their homes.
Generally, the tax legislation of each country or region makes eligibility for such tax deductions conditional on the fulfilment of pre-established requirements, and these are as follows.
What are housing tax deductions?
Definition and types of housing tax deductions
Housing tax allowances refer to the options provided by law for a lower tax burden in relation to home ownership.
There are several options to reduce the tax burden, both for the homeowner who has his or her property rented and earns income from it and for the tenant in case the amount of rent paid represents a significant part of his or her total income. In Spain, we can find both tax deductions on housing at the state level and at the autonomous community level.
Tax deductions for homeowners
In our country, homeowners can benefit from various tax deductions. However, it is important to bear in mind that tax laws and regulations can change, so it is advisable to consult the latest information from the Tax Agency for the most up-to-date details.
An example of these is the tax deduction that the Government extended in October 2022, to encourage housing rehabilitation within the framework of the Recovery Plan (Law 10/2022 of 14 June).
Main tax deductions for homeowners
They are as follows:
- Deduction to promote housing refurbishment.
- Deduction for renting a primary residence for people under 36 years of age.
- Deduction for renting a primary residence linked to certain dation in payment operations.
- Deduction for renting a primary residence for large families.
- Deduction for renting a primary residence for single-parent families.
- Deduction for renting a primary residence for people with disabilities.
- Deductions for habitual residence in rural areas.
- Deduction for the acquisition or renovation of the main residence in rural areas.
Even so, the most common way to reduce the tax burden of a landlord who has his property rented out is by means of a lease:
- The reduction of the net yield by including expenses related to the rental (due to IBI, home insurance, a community of neighbours, repair bills, depreciation of the property, etc.).
- 60% reduction in the net yield (which will become the reduced net yield) in the event that the property is rented as the tenant’s habitual residence (i.e. not as commercial premises or for tourist purposes).
How to apply tax deductions for homeowners
Homeowners can claim tax deductions on their annual income tax return.
Tax deductions for residential tenants
Although tax deductions for tenants are less common than those for homeowners, certain deductions are available to alleviate the financial burden of renting a home.
The tenant in our country is entitled to two types of deductions: the autonomous region and the state. The first of these is still in force, whereby tenants can continue to deduct their rent on their tax return.
However, the state tax ceased to apply to contracts signed after 1 January 2015, so that only contracts signed before that date can benefit from this tax advantage, with a 10.05% deduction from the annual rent, although their income must be less than €24,107.20.
Main tax deductions for residential tenants
As far as regional deductions are concerned, each region has its own specific regulations. Some of these examples are:
- Community of Madrid: 30% of the rent paid is deductible, up to a maximum of €1,000, for people under 35 years of age, with a gross annual salary of less than €25,620 in individual taxation or €36,200 in joint taxation.
- Andalusia: 15% of the rent paid is deductible up to a maximum of €500 for those under 35 years of age who do not earn more than €19,000 in individual taxation and €24,000 in joint taxation.
- Catalonia: 10% of the rent paid during the year for the rental of the main residence is deductible, up to a maximum of €300 per year, in the case of individual tax returns, provided that the taxpayer is 32 years old or younger on the date of accrual of the tax, or has been unemployed for more than half of the year, or has a degree of disability equal to or greater than 65%, or is a widow and is 65 years old or older; and furthermore that their taxable income minus the personal and family minimum does not exceed €20,000; and that the amounts paid do not exceed €20,000. 20,000; and that the amounts paid in rent exceed 10% of their net income.
Requirements and limitations of tax deductions for tenants of dwellings
Tenants must meet specific requirements and consider certain limitations for tax deductions:
- Duration of the contract: tax deductions for tenants generally apply to long-term rental contracts longer than three years, as it must be the habitual residence (from the first year onwards).
- Name on the contract: the tenant’s name must appear on the rental contract.
- Registration in the municipality of the rented property.
- Legal rent and deposit deposited with the competent body of the community in which the property is located.
As with homeowners, tenants can also obtain tax deductions through their annual personal income tax return (Declaración de la Renta).
In short, both homeowners and tenants nowadays have sufficient mechanisms to benefit from tax deductions in order to pay less tax. In this way, both parties get a financial respite without having to stop contributing enough to public funds; measures that manage to encourage renting and home ownership.
Please contact our tax advisors in Barcelona regarding this issue.
