Personal income tax deduction reduced to 50% for new rental contracts from 2024 onwards.

The recent Housing Law introduces personal income tax (IRPF) tax incentives for new rental contracts for primary residences, with the aim of stimulating the supply of affordable prices. These rebates, which can reach up to 90%, came into force on 1 January 2024, but are conditional on the declaration of stressed market areas by the Autonomous Communities, none of which have done so until now.

In the meantime, the general deduction for new long-term rental contracts, signed from this year onwards, decreases from 60% to 50%. The Renta 2023, which will take place in the spring of 2024, will be the last year in which landlords will be able to deduct 60% of their net rental income in general. From the 2024 tax year, declared in 2025, landlords will have to consider the date on which they signed their rental contracts to determine the applicable allowance.

The Housing Act, in force since last May, introduces changes to the tax incentives for new housing leases signed from 1 January 2024. It is important to note that only regular rental contracts can benefit from these personal income tax deductions. Seasonal rentals, room rentals and tourist flats are not eligible for these deductions.

The general 60% reduction in the net yield on rental housing is now adjusted to 50% for new rental contracts, with the possibility of increasing to 90% by meeting certain requirements. A key requirement for obtaining a higher rebate is that the property is located in an area declared as a stressed residential market area. However, so far, no Autonomous Community has specified this declaration.

Catalonia is making progress in this aspect, presenting a proposal to the Central Government last September that included 140 municipalities with stressed rental prices. However, the Ministry requested more information and details on the correction of imbalances. Another factor delaying implementation is the definition of the homogeneous rental price reference index for the whole of Spain, which is expected to be fulfilled this January according to the new Ministry of Housing and Urban Agenda (Mivau).

The Basque Country has also initiated procedures to declare stressed market areas, identifying 41 municipalities that meet the conditions, including a large part of the metropolitan area of Bilbao, San Sebastian and Vitoria-Gasteiz, as well as Eibar, Irun, Barakaldo, Zarautz and Portugalete.

Rent allowances for personal income tax from 2024: Changes and Details

The Housing Act amends the Personal Income Tax Act to introduce significant changes to the allowances applicable to residential leases. Article 23, paragraph 2, is amended as follows:

In the case of residential leases in stressed residential market areas, the positive net yield is reduced by 90%, provided that a new contract is formalised with a 5% reduction in the initial rent compared to the previous contract.

A 70% reduction applies if the above requirements are not met and if the landlord rents for the first time to someone aged 18 to 35 in a stressed area, or to a non-profit organisation with social purposes.

A 60% reduction applies when the property has been subject to renovation in the two years preceding the signing of the lease.

A 50% reduction applies in any other case.

It is essential that these requirements are met at the time of signing the lease, and the reduction applies for as long as these requirements are met. These reductions apply only to positive net returns submitted prior to the initiation of verification, limited verification or inspection procedures. They do not apply to income not included or expenses unduly deducted, nor do they apply to contracts in breach of urban tenancy legislation. Stressed residential market areas will be determined by resolution of the Ministry of Housing and Urban Agenda, in accordance with state housing legislation.