Rental income tax in Spain: the 60% reduction many landlords miss

If you let your flat as the tenant's main home, you're entitled to a reduction on the net rental income in your IRPF (Spanish personal income tax): 60% if the contract was signed before 26 May 2023 and, if it's later, 50% as a general rule (more if you meet certain requirements). It's one of the most important tax reductions in Spanish law, and many landlords miss out on it through lack of awareness or mistakes in their tax return.

How the 60% reduction works

Net rental income = rental income - deductible expenses. On that net income, you can deduct 60% if the property is let as the tenant's main home and the contract predates 26 May 2023. Only the remaining 40% is taxed at your marginal IRPF rate. On later contracts, the general reduction is 50% and the other half is taxed.

Example: rent of €700 a month = €8,400 a year. Deductible expenses (mortgage interest, IBI, the local property tax, community fees, insurance) = €3,000. Net income = €5,400. The 60% reduction = €3,240. Actual taxable base = €2,160. If your marginal rate is 30%, the tax is only €648 a year. With a later contract and the general 50% reduction, the base would be €2,700 and the tax €810.

Requirements for applying the reduction

• The flat must be the tenant's main home (not a seasonal let, not a holiday let, not an office)
• You must have a signed tenancy agreement and declare the income in your IRPF return
• The reduction applies only to positive income (if you make a loss, it doesn't apply)
• Since 2024, for contracts signed on or after 26 May 2023, the reduction is 50% as a general rule, and it can be 90% (a zona tensionada, an officially declared stressed housing market, and the rent lowered by more than 5% compared with the previous contract), 70% (a tenant aged 18 to 35 in a zona tensionada, in a home you're letting for the first time, or a let to a public authority or non-profit organisation for social housing) or 60% (a home renovated in the two years before the contract)

Which expenses are deductible

Deductible expenses are: mortgage interest (but not the repayment of capital), IBI, community fees, home insurance, repairs and maintenance, management fees, depreciation of the property (3% of the value of the building) and advertising costs for finding a tenant.

Work out your net yield after tax: RadarPro includes the net income calculation in its investment analyses.