Property owners may apply the 50% Personal Income Tax (IRPF) reduction if the contract identifies the resident

The leasing of properties intended for residential use allows owners to access a 50% reduction in the IRPF taxable base on the income obtained. However, doubts have arisen as to whether this tax advantage is lost when the rental contract is signed with a legal entity (a company) instead of the final occupant.

What the DGT has ruled

The Dirección General de Tributos (DGT) has determined that the reduction provided for in Article 23.2, letter d) of the Law 35/2006 (LIRPF) is applicable, even when the lessee is a commercial company. The key criterion is not who signs the contract, but rather the purpose of the contract and the identification of the user.

For the reduction to be valid, two fundamental requirements must be met:

• The lease agreement must prove that the property is intended for residential use as established in the Urban Leasing Law (LAU).
• The exclusive use of the residence must fall to a natural person fully identified in the contract.

Furthermore, the Administration has clarified that the fact that an employee uses the residence for temporary work-related reasons, while maintaining their habitual residence and family in another location, does not prevent the lease from being classified as residential for tax purposes.

What this means for you

If you are a property owner and you rent your home to a company so that an employee can reside in it, you do not automatically lose the right to the 50% tax reduction in your income tax return. The nature of the contract as a residential lease is maintained as long as the conditions of use and occupation are met.

Nevertheless, the classification of this type of contract is a matter of fact. This implies that the Tax Administration will evaluate the reality of the operation through the means of proof provided.

What you should do

To ensure the application of this tax benefit, it is necessary for the lease agreement to be precise. It is essential that the document not only mentions the tenant company but also expressly identifies the natural person who will use the property as their residence. Correctly documenting the purpose of use is the primary tool to prevent the Tax Agency (Hacienda) from reclassifying the rental as a use other than residential.