Housing – Tax amendments and new incentive regimes

Simplified Affordable Letting Regime (RSAA) 

The RSAA replaces the current Affordable Letting Programme, whilst maintaining the rationale of incentivising housing supply at controlled prices.

For the purposes of applying the regime, the following are eligible:

• Type: Tenancy agreements, tenancy agreements for residential sub-letting and residential sub-tenancy agreements, as well as those entered into under programmes approved by municipalities and inter-municipal bodies with the purpose of incentivising housing supply in the form of affordable letting;
• Rent ceiling: The monthly rent may not exceed 80% of the median rents published by the National Statistics Institute (INE) for the municipality in which the property is situated (the limit to be set by joint ministerial order of the Finance and Housing portfolios);
• Minimum duration: For permanent residence, the agreement must have a minimum duration of 3 years. For temporary residence, the minimum term is 3 months.

Agreements entered into under the RSAA benefit from a full exemption from IRS and IRC on rental income derived from these Affordable Letting Agreements.

The regime takes effect from 1 September 2026 and applies to new agreements and renewals.

Tax incentives for the construction, rehabilitation, sale and letting of properties intended for owner-occupied permanent housing and other residential properties

For IRS purposes:

• Capital gains exemption: Exemption from taxation of capital gains arising on the disposal of properties intended for owner-occupied permanent housing and other residential properties, provided the proceeds are reinvested in the acquisition of properties situated in national territory intended for residential letting at rents not exceeding € 2,300;
• Progressive increase in the rent deduction from tax liability: In 2026, the deduction limit is € 900; in 2027, the deduction limit is € 1,000;
• Separate rate for residential rents: Rents not exceeding € 2,300 from agreements intended exclusively for residential letting benefit from a separate taxation rate of 10%.
• New withholding tax rate on Category F income: A withholding tax rate of 10% shall apply to rental income arising from this type of agreement, where paid by entities with organised accounting.
• Suspension of the reinvestment period for owner-occupied permanent housing: The reinvestment deadline may be suspended where non-compliance results from circumstances not attributable to the taxpayer and is the subject of court proceedings, duly reported to the Tax Authority through the IRS return; the deadline resumes after the court decision, with an additional period of 12 months, failing which the capital gain shall be taxed (with compensatory interest) if the reinvestment is not completed.

For IRS and IRC purposes:

• Partial inclusion of rental income: Rental income earned until 31 December 2029, derived from residential tenancy agreements with rents not exceeding €2,300, is taxed on 50% of its value where obtained by IRC taxpayers, or by IRS taxpayers with organised accounting, within the scope of Category B.

For VAT purposes:

Until 31 December 2032, subject to the fulfilment of a set of conditions, the reduced rate shall apply to construction or rehabilitation works on:

• Properties intended for sale as owner-occupied permanent housing, or properties intended exclusively for residential letting, provided the sale price does not exceed € 660,982 or the monthly rent does not exceed  € 2,300, respectively;
• Urban buildings or their autonomous units intended for residential letting and covered by the regime for costs of general economic interest.

Where the reduced VAT rate applies, the reverse charge mechanism shall also apply, even where the acquirer carries out exclusively transactions that do not confer the right to deduction.

Should the conditions for application of the reduced rate cease to be met, the outstanding tax shall be subject to regularisation.

Failure by the owner to allocate the property to owner-occupied permanent housing shall result in an additional IMT charge of 10% on the taxable value.

Alternative Investment Undertakings (OIA) with assets allocated to the RSAA

• Special 5% rate applicable to distributions: Income distributed to the participants/shareholders of OIA is taxed, in respect of results from the immediately preceding period, at a rate of 5%, in proportion to the extent that, in that period, the OIA's income was derived from tenancy and/or sub-tenancy agreements covered by the RSAA or legally similar regimes;
• Exclusion from taxation of up to 30% (distributions, redemptions and liquidations): Partial exclusion from taxation at investor level, determined by tiers based on the percentage of properties allocated to letting and/or sub-letting covered by the RSAA/similar regimes. The exclusion applies to (i) the remainder of distributions not covered by the 5% rate and (ii) income from redemptions or liquidations, and may reach 30% where the eligible assets exceed 50%.

Regime for partial restitution of VAT

Subject to the fulfilment of certain requirements, individuals who bear VAT at the standard rate on construction works for owner-occupied permanent housing (outside the scope of business activity), until 31 December 2032, may apply for reimbursement of the difference between the VAT paid and the VAT that would have resulted from application of the reduced rate.

Should the requirements of the regime cease to be met, the Tax Authority may correct the amount restituted within a period of four years by means of an additional assessment.

IMT – Non-residents

An IMT rate of 7.5% is established for the acquisition by non-residents of urban buildings or autonomous units of urban buildings intended exclusively for housing, except where one of the following circumstances applies:

• The acquirer was considered tax resident in national territory;
• The acquirer becomes tax resident within two years of the date of acquisition;
• The property is allocated to residential letting and the rent does not exceed € 2,300. The tenancy agreement must be entered into within 6 months of the date of acquisition for at least 36 months, whether consecutive or non-consecutive, during the first 5 years.

The Tax Authority may, upon application by the interested party, cancel the amount corresponding to the difference between the tax paid and the amount resulting from the application of the standard rates.