Spain’s government is planning to use the tax system to penalise private landlords who significantly increase rents while rewarding those who freeze or reduce them.

Under a draft royal decree expected to be approved by the Council of Ministers on Tuesday, landlords would receive progressively smaller income tax (IRPF) relief depending on how much they increase the rent when signing a new tenancy agreement.

The proposals, seen by Spanish newspaper El Periodico, would apply across Spain and mark a significant expansion of measures first introduced under the 2023 Housing Law.

At present, landlords can claim tax reductions of up to 90% if they cut rents by more than 5%, but only if the property is located in an officially designated ‘stressed housing market’ area.

Because most autonomous regions – particularly those governed by the Partido Popular (PP) – have refused to declare such areas, the incentive has been largely confined to Catalonia, Navarre and the Basque Country.

The new proposals would remove that geographical restriction, allowing landlords nationwide to benefit from tax breaks if they reduce rents, while introducing, for the first time, a sliding scale that cuts tax relief for those who increase them.

Importantly, the changes would not affect annual rent increases made during an existing tenancy. Instead, they would apply only when a landlord signs a new rental contract for a property that was previously let.

The tax office would compare the new monthly rent with the final rent paid under the previous tenancy, after any permitted annual indexation.

How the proposed tax breaks would work

Landlords who increase rents would see their tax relief reduced as follows:

• 40% tax reduction if the rent rises by up to 5%
• 30% if the increase is between 5% and 10%
• 25% for increases of 10% to 15%
• 20% for increases of 15% to 20%
• 15% if the rent rises by more than 20%

By contrast, landlords who freeze rents would be entitled to a 50% reduction on their net rental income.

Those who cut rents by more than 5% would qualify for at least a 70% reduction, regardless of where the property is located.

In some cases, landlords could qualify for a 100% tax exemption.

That would apply if they renew a tenancy with the same tenant after the minimum contract period has expired and reduce the rent by more than 5%, or if they let the property to a new tenant at a price below the government’s official rental reference index or another benchmark set by the Housing Ministry.

Even bigger tax breaks in ‘stressed’ areas

The government’s designated stressed housing market zones would remain in place but would offer even greater incentives.

Landlords who reduce rents by more than 5% could qualify for:

• 95% tax relief if the property is in a stressed area and rented to someone aged 18 to 35
• 90% if it is in a stressed area regardless of the tenant’s age
• 85% if rented to a tenant aged 18 to 35 outside a stressed area

Elsewhere in Spain, landlords reducing rents by more than 5% would receive the standard 70% reduction.

If approved on Tuesday, the reforms could represent one of the biggest changes to Spain’s taxation of rental income in recent years, using the tax system to encourage landlords to keep rents down rather than imposing direct price controls nationwide.