Impact on Real Estate Capital Reductions

Law 12/2023

Law 12/2023, enacted on May 24, brings significant modifications to the Personal Income Tax Law, specifically concerning the right to housing and reductions in real estate capital income. This article highlights the fiscal measures that agents in the Spanish real estate market need to be aware of.

Reducing Rental Housing: Law 12/2023 introduces different percentage reductions for rental housing contracts signed from January 1, 2024:

• 90% reduction applies when the lessor enters into a new lease contract for a dwelling located in a high-stress residential market area. The initial rent must be reduced by more than 5% compared to the previous lease contract for the same dwelling.
• 70% reduction is applicable in certain circumstances, such as when the property is rented for the first time in a stressed residential market area to tenants between 18 and 35 years of age or when the lessee is a Public Administration or non-profit entity allocating the dwelling for social renting.
• 60% reduction applies when the dwelling has undergone a renovation project completed within the past 2 years before the rental contract's conclusion.
• 50% reduction is available for other cases.

Requirements and Stressed Residential Market Zones: To qualify for the reductions, the requirements must be met at the time of entering into the lease contract. Stressed residential market zones are determined by the Ministry of Transport, Mobility, and Urban Agenda, based on state legislation on housing. These zones consider average household income, mortgage or rental costs, basic utilities, and purchase or rental price increase exceeding 5% above the CPI.

Effective Date and Contract Eligibility: Although Law 12/2023 takes effect from May 26, 2023, the specified percentages apply only to contracts entered into on or after January 1, 2024. Contracts entered into before this date follow the reduction provisions of Article 23.2 as of December 31, 2021.

Stay informed about the modifications in the right to housing and the impact on real estate capital reductions in the Personal Income Tax Law. Compliance with the new legislation is crucial for individuals and entities operating in the Spanish real estate market.