No Tax Benefits For Property Buyers Or Tenants

1/12/2014 – Cinco Dias

Tax incentives for property purchase undoubtedly contributed to the real estate bubble inflation which became one of the main culprits of current Spanish economical situation. The Government decided to eliminate tax deduction for acquisition of a main residence which will be preserved retroactively but will not apply from January 1st 2015 onwards. The same reform approved ten days ago rules out taxable profits arising from main home rental and decreases benefits from the buy-to-lease scheme.

Now, tenants can deduct 10.05% of the annual rental amount in their tax filing, given it does not exceed €9.040 in case of a taxable base below €17.707,2. The allowance is also applicable to higher basis until a €24.107 cap, however, once the previous limit trespassed, the incentive is progressively reduced to zero.

Once the new year begins, tax deduction for both property purchase and lease will disappear but it will apply in a retroactive way, i.e. for the homes acquired before 2013 and the rental contracts signed by the end of December 2014.

In 2015, acquiring a property to lease it afterwards will assure an up to 60% deduction for landlords but they will lose the 100% allowance for renting to under-35 tenants.

Pressured to relax the new taxation conditions for capital gains proceeding from property sales, the Ministry of Finance has amended the reform originally eliminating revaluation rates and abatement coefficients, reduced for homes bought before 1995. The latter decreases the tax liability of the capital gain accumulated from the moment of purchase to January 2oth 2006, turning out extremely beneficial for old property sales. The coefficient goes up back in time. For example, if a home was bought before 1986, accrued capital gains as of January 2006 become exempt to the taxation rules. And if it was acquired in 1987, only 11.12% of the revenue will be a subject to the contribution.

Revaluation rates are set to disappear in 2015. The abatement coefficients will remain in force but will only apply to houses sold for less than €400.000. There will be no allowance for an amount above this topline which additionally will be accumulative. This means that the abatement coefficients enjoyed at a sale for €300.000 may be prolonged only to another sale for €100.000.

Given the amendments, it would be to recommendable to sell a house still this year. One must also crunch the numbers as the complete removal of revaluation rates and the restriction of abatement coefficients will be compensated by a reduction in taxes on capital gains. Thus, proceeds from a home sale now are subject to 21% tax for first €6.000, 25% for next €24.000 and 27% above that amount. From 2015 on, the contribution will be reduced to 20% (first €6.000) and to 19% in 2016, furthermore to 22% for following €50.000 and to 24% for the rest (23% in 2016).

Therefore, an owner should take into consideration that if they sell in 2015, they will pay less taxes and if for less than €400.000, there will be no handicap, except for the elimination of the coefficient recognizing the inflation effect.


Original article: Cinco Días (by Nuria Salobral)

Translation: AURA REE