Taxes on residential rentals in Spain

In Spain, it is customary to pay taxes when any economic transaction is carried out. Renting is included among the transactions that are subject to taxes, although these may vary depending on the situation.

What is meant by renting a house

Renting a home is the transfer of rights by the owner so that another person can use and enjoy the property in exchange for a sum of money, which is the tenant’s mandatory payment.

All rental conditions are reflected in a lease agreement. For example, contact information, contract duration, monthly and deposit amount, intended use of the apartment, who pays for utilities and expenses, etc.

What does the housing rental tax consist of?

The housing rental tax is a tax obligation that owners of housing pay for having obtained income from renting it, considering it as income from real estate capital and, therefore, having to include it in the Income Tax Return. But, in addition to income tax, rental income may also be subject to other taxes.

Taxes payable for renting an apartment

Now let’s look at the main taxes that apply to rental income from real estate.

Personal Income Tax

Personal income tax (IRPF) is a personal and direct tax that taxes the income of individuals according to their personal and familiar circumstances.

This is the main tax applied to renting a house, and it is the landlord’s responsibility to declare the net rental income. To do this, deductible expenses directly associated with the property are subtracted from the income received to obtain the net rental income. After applying the relevant reductions, this becomes the taxable base.

As it is a progressive tax, the tax increases according to the taxable base. The applicable tax brackets are as follows:

Up to 12,450 euros, where a 19% tax is paid.
Up to 20,199 euros with a tax rate of 24%.
Up to 35,199 euros taxed at 30%.
Up to 59,999 euros, where a 37% tax is paid.
Up to 299,999 euros with a 45% tax rate.
Starting at 300,000 euros at 47%.

If the lease is for primary residence, the owner may apply a tax reduction on the net income. This reduction ranges from 50% to 90%, depending on factors such as whether the property is in a stressed market area, the tenant’s age, or recent renovations.

Value Added Tax (VAT)

It is an indirect tax that is applied to consumption and taxes the supply of goods and services by companies and professionals, intra-community acquisitions of goods and the importation of goods.

In the case of residential rentals, this tax is only payable when the rented property is not used as a primary residence. For example, commercial premises or tourist accommodation.

The applicable Value Added Tax (VAT) rate is 21% of the rental amount.

In addition to these two taxes, the owner is responsible for the Property Tax (IBI). This is a direct tax on property ownership; for rental properties, it is considered a deductible expense when calculating net rental income.

Consequences of not declaring rental income from an apartment

If, whether by mistake or intentionally, rental income is not declared, you should know that it will not go unnoticed.

Failure to declare income earned from renting a home can have legal and financial consequences, including fines ranging from 50% to 150% of the undeclared amount.

The amount of these fines varies in proportion to the severity of the infraction:

Minor fines. This is the least serious case, applied when the undeclared amount is less than 3,000 euros, provided there was no deliberate concealment. The fine is a maximum of 50% of the amount defrauded.
Serious fines. These fines will be applied when the amount exceeds 3,000 euros and it is proven that there was an intention to conceal the information. In this case, the fine ranges from 50% to 100%.
Very serious fines. The most serious cases will occur when fraudulent means are used, such as false documents or simulated accounting structures. In this case, the fine can be increased to up to 150% of the undeclared amount.

In addition to paying the fine for non-compliance, the owner will also have to pay the tax owed, including late payment interest to the Tax Agency for the time that has passed since the payment should have been made.

Therefore, a rental agreement signed by a homeowner granting the use of their property to another person in exchange for payment is subject to taxes. The primary tax is Personal Income Tax (IRPF). However, if the property is not used as a permanent residence (e.g., short-term or commercial rentals), the lease is not exempt from Value Added Tax (VAT) and will be subject to a 21% rate. Failure to pay these taxes will result in a fine, in addition to the obligation to pay the outstanding amount plus late payment interest. If you have any questions, you can contact us. The first informational consultation is free!

Further information

This article is part of our service Real Estate Lawyer in Spain. Visit this section where you will find all the useful information on this topic, including a complete guide on How to buy a house in Spain.

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