It is important for a correct fiscal planning to take into account the fiscal invoice that we can have at the time of presenting our taxes, since it can bring us headaches when we see the quota that we have to pay our taxes. Before carrying out any operation of rent or sale it is of vital importance to know the conditions and taxation of each management that we carry out.
Are you more interested in renting a property to a private individual or a family? How much real estate capital will we have to pay 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 a natural person. He comes to our office to rent a property located in Malaga city, this property is located in a mixed-use building (for housing and business offices), given the high demand that has this area of Malaga we can offer the customer the option to rent for long term (to an individual), or to rent it as an office (to a company). Given that before starting the marketing of the property one of the aspects that are taken into account, and equal monthly rental income,
We have to consider several things. From the point of view of the rented property, it is well known that the Urban Leases Law distinguishes between rentals for housing and rentals for use other than housing. The former are affected by a whole series of mandatory rules included in the Urban Leases Law (LAU), referring to the duration of the contracts (5 years minimum for housing), the updating of rents, the distribution of expenses between the parties, the obligation to conserve the rented property, etc. In contrast, leases for use other than housing generally enjoy greater freedom of agreement on these aspects.
As for the tax treatment, in the IRPF the rental of housing benefits from a reduction of 60% (it may change with the future Housing Law). In addition, renting for use other than housing carries VAT, which will not change your income, but it does create additional obligations for the lessor, which we will see. And in certain cases, when you pay the rent, the lessee will apply a withholding tax.
How to declare your rental properties for personal income tax purposes?
Comparative calculation of revenues
Let's suppose that your marginal rate of IRPF is 30%. If you rent the apartment as the tenant's usual residence, you can For years the Personal Income Tax(IRPF) regulations have allowed you to apply a reduction in the calculation of the positive net yield of real estate capital, in the case of leases of real estate used for housing(article 23.2 of Law 35/2006 of the IRPF).
The Law 12/2023 , of May 24, for the right to housing (" Law 12/2023 ") introduced important modifications in its final provisions, which included a relevant tax modification in these reductions. In general, the reduction was set at 50%, which is lower than the reduction previously set (which was 60%) and it was established that, in some very specific cases, the reductions could reach 90%. In the event that you do not have any deductible expenses, if you receive 1,500 euros per month of income, obtaining a total of 18,000 euros per year, the reduction will amount to 9,000 euros (18,000 x 50%) being the reduced net tax yield of 9,000 euros, which will mean a payment of IRPF of 2,700 euros (9,000 x 30%). After paying the income tax, you will obtain a net annual rental income of 15,300 €. If you want more information about other previous reductions contemplated by the IRPF Law, you can read the following article.
If you rent the apartment as an office to the company for 1,500 euros per month, at the end of the year you will have a net income after taxes of 12,600 euros, resulting from subtracting from the gross rent (18,000 euros) the 5,400 euros of taxation (18,000 x 30%).
As a conclusion we can observe, that in order 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 it as a house. Of course, you can think that the apartment will be better preserved as an office, theoretically with less worries and repair costs, or that in case of non-payment it will not be affected by suspensions of evictions or by other legal limitations such as the annual update of rents. These considerations would be valid for the rental of commercial premises.
| NET RENTAL INCOME AS HOUSING OR OFFICE FOR EXAMPLE | |||||
|---|---|---|---|---|---|
| Type | Monthly rent | Annual income tax payable | Net annual income | ||
| Housing | 1.500 € | 1.680 € | 10.320 € | ||
| Office | 1.500 € | 5.040 € | 9.360 € | ||
| Due to taxation, in order to be interesting to rent as an office, office or vacation home, you should charge a rent at least 32% higher than that of the house. | |||||
Please note
If you own several rental properties and most of them are not homes, it is very likely that you will be interested in setting up a company to administer and manage the rentals. In the Corporate Tax you will be able to deduct more expenses than those allowed by the IRPF, and the tax rate will be lower in most cases.