Royal Decree-Laws 28/2026 and 29/2026 and the new regime for residential leases (II): tax measures

Summary

Royal Decree-Law 29/2026, of October 6PDF,[1] introduces a set of tax measures that turns the tax system into one more instrument of housing policy. It redesigns the Personal Income Tax (IRPF) reduction for residential leases so as to favor landlords who lower the rent and penalize those who raise it; creates a state rental tax credit for lower-income taxpayers; introduces, from 2027, a progressive scale of deemed income from real estate (imputación de rentas inmobiliarias) for properties that are not leased; exempts the gain obtained on the sale of vacant dwellings to public entities; excludes from the Value Added Tax (VAT, IVA) exemption leases of furnished dwellings of up to thirty nights; expands the surcharges that city councils may apply under the Property Tax (IBI); updates the coefficients of the Municipal Capital Gains Tax (IIVTNU, ‘plusvalía municipal’); and raises to 25% the special levy on SOCIMIs (Spanish REITs) on the residential profits they do not distribute. Royal Decree-Law 28/2026PDF,[2] for its part, although it has no tax content, raises a significant tax issue: the taxation of the compensation for non-renewal that it establishes. Both instruments are pending ratification (convalidación) by the Standing Committee of the Congress of Deputies (Diputación Permanente del Congreso), and this note complements the one devoted to their civil and procedural aspects, which can be consulted here.

1. Timeline of effects

Royal Decree-Law 29/2026 reintroduces, with some adjustments, the measures of Royal Decree-Law 26/2026, which Congress refused to ratify on October 2, 2026, a precedent that calls for caution in any decision based on the new instrument while its ratification remains pending.[3] Moreover, its measures do not enter into force simultaneously but in stages, and some of them apply retroactively from January 1, 2026, which, should the decree also fail to be ratified, would raise doubts as to the treatment of the effects produced while it was in force.[4] The following table sets out the effective dates of the main measures.

2. Landlord’s IRPF: the new lease reduction

The reduction of net rental income (income from real estate) derived from residential leases now depends on how the rent evolves relative to the previous contract on the same dwelling, and it fully benefits only landlords who are not large holders (grandes tenedores), since an individual who is a large holder may apply only the 70% and 60% reductions.[5] Where more than one reduction is applicable, the highest one applies, provided that the income was reported before the start of any verification procedure and that, in stressed residential market areas (zonas tensionadas), the statutory rent limit has been complied with.[6] The provision now defines its scope by reference to leases of a main residence, which, following the reform, expressly include room leases and exclude temporary housing leases,[7] which is likely to settle the debate that existed regarding the former and leaves the latter outside the reduction. The following table summarizes the various scenarios.

The new system applies only to contracts entered into after December 1, 2026, since contracts prior to Law 12/2023PDF retain the 60% reduction, and those entered into from then until that date keep the wording in force in 2025, which provided for reductions of 90%, 70%, or 60% in specific scenarios and 50% in all others.[8] The 80% reduction for tacit extension, by contrast, extends to any contract whose five-year minimum term ends after December 1, 2026, and, if Royal Decree-Law 28/2026 is ratified, it may be expected to extend also to the new five-year renewals, which the reform likewise characterizes as tacit and mandatory.[9]

3. Tenant’s IRPF: state rental tax credit

A state tax credit of 10% of the amounts paid as rent for the main residence is introduced for taxpayers whose tax base is below €33,007.20,[10] with a maximum base of €11,630, equivalent to a credit of up to €1,163, where the tax base does not exceed €23,007.20, and with a base that, between that figure and €33,007.20, is reduced by the result of multiplying by 1.163 the difference between the tax base and €23,007.20. To apply it, neither the taxpayer nor the members of their family unit may, for at least half of the tax period, hold full ownership of, or a right in rem of use or enjoyment over, another dwelling located less than fifty kilometers away, unless an administrative or court decision prevents them from using it as a residence, an exception that is particularly relevant where the use of the family home has been allocated following a breakup. The new credit cannot be applied together with the former transitional rental tax credit in respect of the same dwelling and the same tax year,[11] and it takes effect from October 8, 2026, without the provision clarifying whether, in this first tax year, it covers all amounts paid in the year or only those paid from that date.[12]

4. Non-leased properties: progressive deemed income

For the 2026 tax year, the 1.1% rate is maintained in municipalities whose cadastral values have been revised with effect from 2012 onward,[13] but from January 1, 2027, the deemed income from urban properties that are neither the main residence nor leased will be calculated by applying a progressive scale to the sum of their cadastral values, with rates of 1.1% up to €100,000, 1.5% up to €500,000, 2% up to €1,000,000, and 3% above that amount, no longer distinguishing between revised and unrevised values.[14] The scale is not always more burdensome, because it looks to the concentration of real estate holdings rather than to the age of the cadastral valuation; thus, for an owner of properties with revised values totaling €600,000, the deemed income would rise from €6,600 to €9,100, whereas for an owner of properties worth €150,000 that are currently subject to the 2% rate, it would fall from €3,000 to €1,850. The same progressivity also carries over to the minimum income that must be reported on leases to relatives.[15]

5. Sale of vacant dwellings to public entities

Gains obtained on sales to public entities or public housing companies, through December 31, 2027, of dwellings that have remained vacant without justified cause during the previous two years are fully exempt where the price is below €200,000, and exempt at a decreasing percentage where it falls between that figure and €800,000, so that a sale for €500,000 would be 50% exempt. The portion of the gain that is not exempt may, in turn, benefit from a reinvestment exemption if the corresponding transfer value is reinvested, within six months, in a Financia Europa Reinvestment Savings and Investment Account (Cuenta de Ahorro e Inversión Financia Europa Reinversión), an exemption that applies only to sales made once thirty business days have elapsed since the entry into force of the provision, although, in the case of partial reinvestment, the provision refers to a “previous percentage” that it does not identify.[16]

6. The Financia Europa Savings and Investment Account

An investment account is created, of which each taxpayer may hold only one, without prejudice to also holding a Financia Europa Reinvestment Savings and Investment Account, and into which up to €150,000 may be contributed. Its internal gains are not taxed until funds are withdrawn from it and, in respect of contributions more than five years old, are excluded from taxation in full up to €10,000 and as to 20% of any amount exceeding that figure.[17] Alongside it, an individual long-term savings insurance product of the same name is created, with a contribution limit of €10,000 per year,[18] although neither product may be marketed until the ministerial orders implementing them are approved.

7. VAT on short-term leases

Residential leases, although subject to VAT, are exempt from the tax, and until now the law excluded from that exemption only leases of furnished apartments or dwellings where the landlord undertook to provide any of the ancillary services typical of the hotel industry, such as restaurant, cleaning, or laundry services. From December 1, 2026, a second exclusion is added, which is not limited to tourist-use dwellings (viviendas de uso turístico) but extends to any lease of furnished apartments or dwellings whose duration in favor of the same tenant does not exceed thirty nights, even where no ancillary service is provided, unless the dwelling is the one in which the landlord has their main residence, in which case the lease remains exempt; these leases are taxed at the reduced rate of 10%,[19] whereas, for leases lasting more than thirty nights, exclusion from the exemption will continue to depend on whether those ancillary services are provided. The landlords affected must therefore charge and pay over the tax, with the right to deduct the input VAT they bear, and the shift from an exempt activity to a taxed one may also allow them to partially recover the input VAT borne on the acquisition of, or works on, the dwelling that they were unable to deduct at the time, through the regime for adjusting deductions on capital goods, which for real estate extends to the nine calendar years following the year in which the property entered into use, a matter that requires an individual analysis of each case.[20] The 10% rate is also extended to renovation works on dwellings leased as a main residence that are paid through banking channels,[21] and the super-reduced 4% rate applies both to supplies by their developers of protected housing subject to permanent or indefinite designation and to dwellings acquired by entities under the special regime for entities engaged in residential leasing, provided that their income qualifies for the tax relief (bonificación) provided for them.[22]

8. Local taxes

The optional IBI surcharge on vacant dwellings, which city councils have been able to establish since Law 12/2023, is reworded and moved to a paragraph of its own, which distinguishes according to whether or not the municipality is located in a stressed residential market area. Outside those areas, a dwelling is considered permanently vacant only if, in addition to remaining continuously empty without justified cause for more than two years, it belongs to an owner of four or more residential-use properties, in which case the surcharge may reach 50% of the net tax liability, 100% where the vacancy exceeds three years, and up to 50 additional points where the owner has two or more vacant dwellings in the same municipality; in municipalities with stressed areas, by contrast, the surcharge of up to 50% may be applied to any owner, and only for owners of four or more residential properties may it be raised to 100%, with 50 additional points if the vacancy exceeds three years. The law in any event lists causes that justify vacancy, including temporary relocation for work or training reasons, a change of residence due to dependency, health reasons, or social emergency, a second residence with a maximum of four years of continuous vacancy, the carrying out of works, and the property being offered for sale, for a maximum of one year, or for rent, for a maximum of six months, on market terms.[23] Added to this is a new surcharge on tourist-use dwellings located in municipalities with stressed areas, which may reach 50%, 100%, or 150% of the net tax liability depending on whether the owner holds one, two or more, or four or more dwellings of that kind,[24] and both surcharges require the approval of the corresponding tax bylaw (ordenanza fiscal). In the Municipal Capital Gains Tax, new maximum coefficients apply from December 1, 2026, ranging from 0.11 to 0.30 depending on the period over which the gain was generated,[25] and they apply directly where the municipal bylaw provides for higher ones.[26]

9. SOCIMIs

The special levy on undistributed profits deriving from income that has not been taxed at the general rate is raised from 15% to 25% where those profits derive from residential leasing, including tourist leasing, although it is halved where affordable housing exceeds 80% of the stock allocated to rental, a percentage set transitionally at 60% for 2026 and 70% for 2027, and it disappears where, in addition, the profit is reinvested in that type of housing within three years.[27] Since the measure already applies to the current 2026 tax year, it requires a review of the profit distribution decisions adopted or planned for this year.

10. The compensation for non-renewal under Royal Decree-Law 28/2026

There is no specific administrative doctrine on this statutory compensation,[28] but there is on the amounts that owners pay tenants for waiving their lease rights, which the Directorate General for Taxation (DGT) characterizes, for the recipient, as a capital gain to be included in the savings tax base[29] and not subject to withholding.[30] That criterion, however, presupposes a transfer of the tenant’s contractual position, and the DGT itself has stated that, where the gain does not derive from a transfer, its characterization “can be none other than that of general income,”[31] which supports the argument that the compensation for non-renewal, where the contract terminates upon expiry without the tenant transferring or waiving anything, should be included in the general tax base. Given that binding rulings (consultas vinculantes) have binding effect only where the facts are identical[32] and that the statutory compensation is not a negotiated waiver of existing rights, the matter must be regarded as open.

For individual landlords, the DGT regards those amounts as an increase in the acquisition value of the property, depreciable if it is leased again, and accepts as a deductible expense against rental income the interest on the loan financing them when the property is leased again,[33] although it could be argued that the compensation is deductible as an expense, since the landlord acquires nothing with it that the expiry of the contract did not already confer on them. For companies, the treatment will depend on how the compensation is recognized in the accounts, and it should be borne in mind that the same ruling held VAT to apply to the waiver by a business tenant of commercial premises, a conclusion that cannot be transposed to an individual residential tenant but that must be taken into account where the tenant is a company or a business owner.

11. Frequently asked questions

I am going to renew the lease with a rent increase. Should I sign before December 1?

From an IRPF standpoint, yes, because contracts entered into up to December 1, 2026, retain the 2025 wording, under which, outside the specific 90%, 70%, and 60% scenarios, the reduction was 50% regardless of the rent, whereas for later contracts a rent increase reduces the percentage to between 40% and 15%, depending on the size of the increase.[34] Since the transitional provision does not make it entirely clear whether December 1 itself is included, the prudent course is to sign before that date.

My tenant is still in the apartment without having signed anything new. What reduction do I apply?

During the tacit extension of the contract, the reduction will be 80% if the rent does not exceed the reference index limit and the landlord is not a large holder, provided that the five-year minimum term ends after December 1, 2026; otherwise, the reduction that applied to the contract will be maintained.[35]

I am an individual large holder. Can I apply any reduction?

You may apply only the 70% reduction, where you lease the dwelling to a public authority or a non-profit entity that uses it for social rental or the dwelling is covered by a public limited-rent program, and the 60% reduction, where the dwelling has been refurbished in the previous two years.[36]

I rent my home. Can I apply the new tax credit in my 2026 tax return?

You may apply it if your tax base is below €33,007.20 and neither you nor the members of your family unit own another dwelling less than fifty kilometers away,[37] although, since it remains to be clarified whether, for 2026, all rent paid in the year is taken into account or only rent paid from October 8, it is advisable to keep the payment receipts for the entire tax year.

I have a second home. Will I pay more from 2027?

That will depend on the total cadastral value of your non-leased properties, because up to €100,000 the deemed income rate will remain 1.1%, but above that figure it will rise progressively up to 3%, so that someone currently taxed at 2% because their values have not been revised may even end up paying less.[38]

I have a vacant apartment. How does this affect me?

It depends, first, on where it is located and on how many residential properties you own. If the municipality is not in a stressed area, the IBI surcharge can be applied only to owners of four or more residential-use properties whose dwelling has been vacant for more than two years without justified cause, whereas, if it is in a stressed area, the surcharge of up to 50% may apply to any owner, and in both cases the city council must have established it in its bylaw.[39] If, on the other hand, the dwelling is sold to a public entity by December 31, 2027, the gain obtained will be fully or partially exempt from IRPF,[40] and it should be borne in mind that a second residence, the carrying out of works, and the offer of the property for sale or rent at market price are among the causes that justify vacancy.

I rent out an apartment for short stays. Do I have to charge VAT?

From December 1, 2026, you must charge it, at the 10% rate, where you lease a furnished dwelling for a period not exceeding thirty nights to the same tenant, whether or not it is a tourist-use dwelling and even if you do not provide hotel services, unless it is the dwelling in which you habitually reside,[41] which will require you to register for the tax, issue invoices, and file self-assessment returns, although you will be able to deduct the input VAT you bear.

If my tenant receives the compensation for non-renewal, is it taxed?

It is taxed as a capital gain, not subject to withholding, which, under the DGT’s criterion on the waiver of lease rights, would be included in the savings tax base, although there are arguments for including it in the general tax base since no transfer takes place, and it is allocable to the tax year in which the dwelling is handed over.[42]

And I, as the owner, can I deduct the compensation?

Under the current administrative criterion, not as an expense of the tax year but as an increase in the acquisition value of the property, depreciable if it is leased again and computable on a subsequent sale, whereas the interest on its financing is deductible if the property is leased again;[43] and although there are arguments to support deducting the compensation as an expense, that is the less secure position.

What happens if the decree is not ratified?

It will be repealed and its measures will lapse from that moment,[44] and those that have already produced effects, such as the 2026 deemed income, the rental tax credit, or the SOCIMI levy, will raise doubts whose resolution will depend on how the effects produced while it was temporarily in force are treated.

12. Recommendations

Anyone about to sign a new contract with a rent increase will retain the 2025 wording of the reduction, under which the increase did not reduce the applicable percentage, if the contract is executed before December 1, 2026. Those who lease furnished dwellings for stays of up to thirty nights should prepare their VAT registration and invoicing before that same date; owners of second homes should quantify the deemed income that will apply to them in 2027 and assess, before January 1 of that year, whether it is advisable to lease, sell, or reorganize their properties; and SOCIMIs should recalculate the 2026 special levy before approving the allocation of profits. Tenants, for their part, should keep proof of their rent payments in order to be able to apply the new tax credit.

13. Conclusion

Royal Decree-Law 29/2026 uses the tax system as an instrument of housing policy, insofar as it rewards landlords who contain rents; taxes more heavily vacant housing, tourist-use housing, short-term leases, and the accumulation of second homes; and eases the burden on low-income tenants. However, several of its measures raise interpretive doubts that the Directorate General for Taxation will have to resolve, and all of them depend on a ratification that is still uncertain, so the reasonable course is to plan with the timeline of effects in view and without anticipating irreversible decisions.

Many of the issues analyzed in this note are controversial or open to different interpretations. Should the royal decree-laws be ratified, it will be for the courts to rule on those that may give rise to divergent views; the conclusions set out here are therefore without prejudice to any case law that may be established.

This note is for information purposes only and does not constitute legal or tax advice. Each case requires an individual analysis.

About the author

Juanjo García, Associate at OC | Tax & Legal, is a professional specializing in comprehensive tax advice and litigation, and holds the Expert in Taxation qualification from the UAM. He is an Associate Professor of Argumentation at the Faculty of Law of Universidad CEU San Pablo, among other educational institutions. He has been recognized in the “Ones to Watch” category of the international Best Lawyers 2026 ranking.

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