Deduction of interest and benefits-in-kind in real estate income

The Dirección General de Tributos (DGT) has issued a relevant ruling regarding the integration and deductibility of interest in Personal Income Tax (IRPF), specifically when loans are granted by financial institutions to their employees under preferential conditions.

What the DGT has ruled

The inquiry addresses the possibility of deducting as an expense the interest on loans that, due to their rate being lower than the market rate, constitute a benefit-in-kind for the worker. The ruling establishes that, to determine the net real estate capital income, both the interest actually paid by the taxpayer and those imputed as a benefit-in-kind are considered necessary expenses.

This integration of interest imputed as an expense is subject to a specific limit: the amount of the deduction cannot exceed the amount of the gross income obtained from the real estate capital.

What this means for you

This pronouncement directly affects individuals who, due to their employment relationship with a financial institution, access loans with reduced interest rates. If these individuals receive real estate capital income, they have the possibility of applying both the actual financial cost and the value of the benefit-in-kind as deductible expenses in their IRPF tax return.

For financial institutions, the ruling reinforces the obligation to value said benefit-in-kind by using the price the institution habitually offers to the general public as a reference.

What should be done

It is necessary to analyze the composition of the real estate capital income and the nature of the loans granted. The correct application of this criterion requires:

• Correctly identifying the portion of the interest that acts as a benefit-in-kind.
• Verifying that the sum of the interest paid and the interest imputed does not exceed the gross real estate capital income.
• Ensuring that the valuation of the benefit-in-kind aligns with the institution's market prices.

Given the technical complexity of integrating these concepts, it is recommended to assess each particular situation to ensure compliance with current regulations.