Income tax breaks of up to 90% for landlords renting to young adults

Landlords may be able to offset between 70% and 90% of rental income against their annual tax declarations if their tenants are young adults or from 'vulnerable communities', according to the new housing law of May 2023.

Rental property newly on the market in areas considered 'critical' – where prices are high and those in the 18-35 age bracket are struggling to afford to leave the parental home – could attract reductions of around 70% in income tax paid on the funds received by the owners.

Until now, landlords were able to offset a flat rate of 60%, but this has changed to a sliding scale ranging from 50% to 90%. The new conditions are as follows:

• Where landlords offer rental prices at least 5% lower than in the previous year, and in areas with high demand, low affordability and low supply, they can claim back up to 90% of the tax they pay on what they earn from the tenancy.
• In all cases, renting to those aged 18 to 35 will come with a tax break of 70% - which applies whether the property is owned by a private landlord, a public body such as a local council's housing department, or a non-profit organisation investing in low-cost rental homes. For the latter, the rent would need to be below the State housing help scheme level.
• The 70% tax reduction also applies to those who rent homes to tenants considered 'vulnerable', which could include people with life-limiting disabilities, gender violence survivors, the elderly, or those on very low incomes.
• Properties rented out which have undergone renovations in the last two years will attract a 60% reduction in income tax for the owners.

In all other cases, the general reduction for rental housing will be 50% from 2024, 10% less than the previous reduction of 60%.

These greater tax incentives will not apply to landlords who ask for deposits from new tenants that exceed one month's rent.

The tax breaks will apply from January 1, 2024, meaning landlords will start to see the benefit of them from their annual tax returns filed in spring 2025.

According to the central government's housing department, the aim is to encourage landlords to offer more affordable rent – especially in sought-after areas and big cities where prices are often prohibitive for young adults or those on an average wage.

Whilst research has shown that it remains cheaper to buy with a mortgage than to rent in almost every province in Spain, first-time buyers continue to struggle to gain a foothold on the property ladder due to high deposits required.

A minimum of 20% of the purchase price is needed for a main residence, or 40% for a second or subsequent home, and fees and taxes on top of the sale price also need to be factored in when calculating a mortgage. These are typically around 12.5% of the property price.