The Spanish government is considering income tax disincentives for landlords who raise rents.

MadridAfter the internal booing within the Spanish government Amidst the PSOE-Sumar coalition government's push for tax breaks for landlords, Pedro Sánchez's administration is seeking a balance in its initial tax proposal to try and resolve the dispute. Specifically, the Socialist-led Ministries of Housing and Finance are exploring a formula that combines incentives for landlords who offer a rent reduction when a lease is up for renewal, and penalties for those who raise it, as announced this Friday. The Country Sources within the Ministry of Housing confirm this to ARA. However, the proposal is still in its very early stages, and Sumar, the minority partner, is not convinced. Sources from the party led by Yolanda Díaz confirm that the Socialist wing has put the proposal on the table—negotiations have been ongoing for some time—but insist that tax measures cannot be the only solution for controlling rental prices.

What are the Treasury and Housing ministries studying? It's worth noting that landlords (individuals) can already generally apply a 50% reduction to their personal income tax. The idea would be to modulate this general reduction—to dilute it—if landlords raise the rent once the contract ends (not when the annual rent adjustment is due based on inflation or the Ministry of Housing's index). "Tax disincentivizing rent increases is simply a reduction of a tax privilege," say sources from Sumar.

The Ministry of Housing warns that nothing is finalized and that the measure is in line with combining incentives of up to 100% for those who lower the rent, as announced by Pedro Sánchez in January, and disincentives for those who raise it. "Under no circumstances," Housing sources indicate, would it reach 0% because a differential treatment would still be maintained for long-term residential rentals (five-year contracts) compared to tourist or seasonal rentals.

But Sumar maintains that the solution to the housing crisis that Spain is suffering "cannot arise from the voluntariness of one party [to the problem]; in this case, from the goodwill of the landlord." Therefore, the party insists on establishing as a condition sine qua non An extraordinary extension of the rental contracts that are now expiring. "It's the most effective way to intervene immediately in the rental market," they insist.

In 2021, 632,369 contracts were signed that are eligible for renewal in 2026, in a context where rental prices have risen by an average of 40% compared to five years ago. According to data from the Ministry of Social Rights, the 632,369 contracts ending this year affect more than 1.6 million people. However, the large-scale renewal of rental contracts would affect 2.7 million people if families who will find themselves in the same situation in 2027 are also taken into account.

Parallel Battles

"Giving public money to landlords is a mistake," declared Yolanda Díaz, the Second Vice President of the Spanish government and leading figure of the Sumar party, a few weeks ago, after learning of the measure announced by Spanish Prime Minister Pedro Sánchez. Her party openly opposed applying a tax break of up to 100% on personal income tax (IRPF) for rental income for landlords who do not increase their rent when the contract is up for renewal, whether in a high-demand area or not. In parallel to this negotiation—which has been dragging on for weeks and could even influence the dialogue between the two parties regarding the 2026 national budget—the Spanish government must face a vote in Congress that also affects housing. The social safety net is to be voted on for the second time in the Spanish lower house, and the option that passes... It's up in the air because of the anti-eviction measure.Juntos, which already voted against it, would opt to do the same again, which would be a major setback, especially for Sumar, which pressured until the last moment to ensure that the suspension of some evictions was not solely in a decree law, considering that it was giving up the game.