It is important for proper tax planning to take into account the tax bill we may have when filing our taxes, as it can cause headaches when we see the amount we have to pay in taxes. Before carrying out any rental or sale operation, it is vital to know the conditions and taxation of each management we carry out.
Are you more interested in renting a property to an individual, to a family? What fee will we have to pay for real estate income if we rent a property to a company?
Client A is the owner of a property that he wants to rent, and he is the owner as an individual. He comes to our office to rent a property located in Málaga city, this property is situated in a mixed-use building (intended for housing and company offices), given the high demand in this area of Málaga we can offer the client the option to rent for a long term (to an individual), or to rent it as an office (to a company). Since before starting the commercialization of the property, one of the aspects that are taken into account, and with equal monthly rental income,
We have to consider several things. From the perspective of the rented property, it is known that the Urban Leasing Law distinguishes between residential rentals and rentals for purposes other than housing. The former are affected by a whole series of mandatory rules included in the Urban Leasing Law (LAU), referring to the duration of the contracts (minimum 5 years for housing), the update of the rents, the distribution of expenses between the parties, the obligation to maintenance of the rented property, etc. In contrast, rentals for purposes other than housing generally enjoy greater freedom of agreement in those aspects.
Regarding tax treatment, in the Income Tax, renting housing benefits from a 60% reduction (may change with the future Housing Law). In addition, renting for purposes other than housing entails VAT, which will not change your income, but does create additional obligations for the landlord, which we will see. And in certain cases, when the tenant pays the rent, they will apply a withholding tax.
How to declare your rental properties in the Income Tax?
Compared income calculation
Let's assume your marginal income tax rate is 30%. If you rent the apartment as the tenant's habitual residence, you can Since years ago the regulations of the Personal Income Tax (Income Tax) allows applying a reduction in the calculation of the positive net yield from real estate capital, in the event of leases of real estate intended for housing (article 23.2 of the Law 35/2006 of the income tax).
The Law 12/2023 , May 24, for the right to housing (" Law 12/2023 ") introduced significant modifications in its final provisions in which a relevant tax modification in these reductions. Generally, the reduction was set at 50%, which is lower than the previously set amount (which was 60%) and it was established that, in some very specific cases, the reductions could reach up to 90%. In the case that you have no deductible expenses, if you earn 1,500 euros per month from rent, totaling 18,000 Euros per year, the reduction will amount to 9,000 € (18,000 x 50%), making the reduced net taxable income 9,000 €, which will result in an income tax payment of 2,700 € (9,000 x 30%). After paying the income tax, you will obtain 15,300 € net annually from the rental. If you want more information about other previous reductions contemplated by the Income Tax Law, you can read the following article.
If you rent the apartment as an office to the company for €1,500 per month, at the end of the year you will have a net income after tax of €12,600, resulting from subtracting the gross rent (€18,000) the €5,400 in taxation (€18,000 x 30%).
In conclusion, we can observe that to obtain more income, if we rent the property as an office we would need the rent to be at least 32% higher than that of renting as a home. That said, you might think that the apartment will be better maintained as an office, theoretically with fewer worries and repair costs, or that in case of non-payment it will not be affected by eviction suspensions or other legal limitations such as the annual rent update. With all due respect, these considerations would be valid for the rental of commercial premises.
| NET RENTAL INCOME AS A HOME OR OFFICE FOR THE EXAMPLE | |||||
|---|---|---|---|---|---|
| Type | Monthly rent | Annual income tax to pay | Annual net income | ||
| Housing | 1.500 € | 1.680 € | 10.320 € | ||
| Office | 1.500 € | 5.040 € | 9.360 € | ||
| Due to taxation, for it to be worthwhile to rent as an office, office, or vacation home, you should charge a rent at least 32% higher than that of the housing. | |||||
Please note
If you own several rental properties and most are not homes, it is very likely that you will be interested in forming a company to manage and administer the rentals. In the Corporate Tax, you can deduct more expenses than those allowed by the Income Tax, and the tax rate will generally be lower in most cases.
What happens if I rent my home to a company for the use of an employee? And if a company rents the property to assign it to another tenant? You can check our next post.
