Special buy and hold tax regime in Spain - 85% deduction?!
Valencia · Member since 2020 · 5 posts · 5 votes
Hi everyone,
I understand that in Spain there are significant tax breaks (a deduction of 85%) for companies which rent 8 or more apartments under a special regime. I see that at least 55% of the company's revenue must come from the rentals, and that they must be rented as 'long term rentals'. Does anyone have any experience with this special regime in practice? It almost seems too good to be true. What's the catch?
Has anyone thought of grouping their rental properties together to make use of this tax break?
Thanks in advance!
P.S: I'm investing in Valencia, so happy to discuss and connect with other investors!
- Celia
@Celia Fernández @Paolo De Leon, this is true. As to for what I know this only applies to companies, or family offices (patrimonios) that are adding bit by bit more properties in their portfolio.
It indeed can give you a huge tax break, however, talking with somebody some weeks ago that just got 7 properties buying one of our apartments in Valencia, he was also getting worried - with COVID the government (not sure if that was only in Cataluña or for the whole of Spain) is lowering the conditions the # of properties you need to own to be seen as a 'gran tenedor'. This was 30 in the past, brought down to 15 some time ago, and with COVID brought down to 10 if I am not mistaking.
Now, this looks good at first but have in mind that with being a gran tenedor the Spanish government decided that their tenants should be allowed to only be paying 50% of the rents and having 2 options - 1 being that the tenants don't have to pay back this other 50% at all, or 2 that they pay it back in an instalment plan (or 3 hoping that your tenants will not say anything of course).
You probably noticed that the government created quite a strong picture among all inhabitants that everybody should be almost 'in their right' of not paying rent when they had a difficult situation. A lot of people felt encouraged by these messages and a lot also made use of this (when it wasn't necessary) as a discussion point to the landlords for not paying rent or having the right the get a discount (otherwise you are not a good landlord giving discounts like all the others). Some stories of people even stopped paying completely, because they knew that nobody could kick them out during COVID. Also a lot of tenants knew to find their way in the registers to find out if their landlords were a gran tenedor or not, as (to my surprise) this can be found publicly and easily searching for it.
So, yes, huge advantages and also things to have in mind.
Regards to both!
Hey Celia,
I am very interested to hear about this as well. Have you heard of La Escuela De Inversion by Haro? I found his channel on YouTube and he mentioned this 8 property loophole as well. I was thinking of scheduling a consultation call with him to find out more.
Also, do you know if this only applies to companies? Or can you be a "particular" owning 8 properties and still get the tax benefit comes tax season.
@Celia Fernández @Paolo De Leon, this is true. As to for what I know this only applies to companies, or family offices (patrimonios) that are adding bit by bit more properties in their portfolio.
It indeed can give you a huge tax break, however, talking with somebody some weeks ago that just got 7 properties buying one of our apartments in Valencia, he was also getting worried - with COVID the government (not sure if that was only in Cataluña or for the whole of Spain) is lowering the conditions the # of properties you need to own to be seen as a 'gran tenedor'. This was 30 in the past, brought down to 15 some time ago, and with COVID brought down to 10 if I am not mistaking.
Now, this looks good at first but have in mind that with being a gran tenedor the Spanish government decided that their tenants should be allowed to only be paying 50% of the rents and having 2 options - 1 being that the tenants don't have to pay back this other 50% at all, or 2 that they pay it back in an instalment plan (or 3 hoping that your tenants will not say anything of course).
You probably noticed that the government created quite a strong picture among all inhabitants that everybody should be almost 'in their right' of not paying rent when they had a difficult situation. A lot of people felt encouraged by these messages and a lot also made use of this (when it wasn't necessary) as a discussion point to the landlords for not paying rent or having the right the get a discount (otherwise you are not a good landlord giving discounts like all the others). Some stories of people even stopped paying completely, because they knew that nobody could kick them out during COVID. Also a lot of tenants knew to find their way in the registers to find out if their landlords were a gran tenedor or not, as (to my surprise) this can be found publicly and easily searching for it.
So, yes, huge advantages and also things to have in mind.
Regards to both!
Hi Paolo,
Yes, I´ve followed him for a while and has very interesting content. It seems he knows all the good tricks. He has a new book called "Los trucos de los ricos" which is good value too.
For what I have found online and from reading the law this is only applicable to companies. It is an special regime that you can choose if you have an S.L that manages long-term rentals (at least 3 years) of at least 8 apartments. Also, at least 55 percent of the value of the S.L.'s assets should be capable of generating income that is entitled to the application of the bonus (art. 49 LIS).
Obviously there are significant monthly operating costs for having an S.L. (around 400 Euros in social security and accountancy fees) so you would need to do the math to make sure the tax savings exceeded the costs for maintaining the S.L. The other thing is you have to pay corporate tax rate (fixed at 25%) and then potentially again depending how you withdraw money from the S.L. for instance tax on dividends. Art. 21 talks about exemptions for tax on dividends but I´m still trying to decipher that one. Either way, I´m sure that Juan Haro will have some clever ways to avoid this double taxation and get money out of the S.L! If you withdraw it as wages, you don´t have to pay corporate tax as well (as wages are a deducible expense) but then you are paying progressive income tax rates.
If you were to rent it out as a particular, the deduction would be up to 60% - so still not bad!
The other important thing to consider is if you intend to move out of Spain at some point. If you cease being a Spanish tax resident, as a particular you lose all ´bonifications´ as well the ability to deduct expenses. As such, you will pay tax on revenue, not profit, meaning you could be making a net loss and still have to pay taxes.
This is my understanding of the situation, but I am still trying to figure it all out myself, so please don´t take any of this as gospel.
I´ll let you know anything else I learn.
Exactly.
Just to add: regarding receiving 85% discount as a patrimonial on your company tax, this can already be (like you said @Celia Fernández) from 8 properties. This is interesting, because you are not seen as a gran tenedor if you don't own more than 10 properties.
@Celia Fernández Awesome input! I will put all these into consideration and talk to my accountant. Sending you a message
@Paolo De Leon, bulletproof lease - could be, but it will take a lot of negotiation power to convince your tenants. All the leases are more or less the same in Spain, so doing something different from the 'normal' will probably get some resistance.
Property management company - we manage our properties ourselves and are managing properties for other people too.
Lawyer - yes, we could give you our lawyer contacts that we use normally.
Send me a PM and I will share it with you.