With the still current memory of 13-O, the so-called ‘revolution of the keys’, the Government wants to expand its arsenal to face one of Spain’s biggest housing challenges: the transfer of apartments from the rental housing market to another country. tourist. And he wants to do this by addressing a very important point in the industry: the returns the latter offers to homeowners. PSOE and Sumar want to impose a 21% VAT on tourist apartments to limit this and make the prospect of holiday rentals no longer so attractive to owners.

The measure is included in a broad fiscal package for 2025, which still has a challenging journey, but marks one of the Government coalition’s strategies to alleviate the lack of supply of rental housing in certain regions of Spain. The question is… Would it really be effective?

What happened? Two Government partners, PSOE and Sumar, want to impose a 21% VAT on tourist rentals as part of their agreement to promote tax reform in 2025. The goal is simple: the homeowner has less incentive to move their home out of the residential rental market and into the vacation rental market, due to the attractiveness of its profitability.

This is clearly stated in the agreement between both groups, which talks about introducing a general rate of VAT on apartments for tourists in order to “reduce their profitability and convert them into permanent rental housing, alleviating the lack of customary housing in the regions.” emphasized”.

What is the situation now? The Treasury is very clear on this issue. Currently taxation mainly depends on how the rent and its services are. “The person renting tourist accommodation is considered a business person for VAT purposes. However, rentals of tourist accommodation where the lessor is NOT exempt from VAT and is therefore subject to JTP’s Onerous Asset Transfers provide services typical of the hotel industry,” says the Tax Office.

The NO written in capital letters is from the Treasury itself; This emphasizes that in these cases the landlord does not have to submit VAT. Things change if the tenant pays more than the accommodation fee and provides services that can be found in a hotel or hostel.

“In case of provision of services in the hotel sector, the rental of a tourist apartment will not be exempt from VAT and should be taxed at a reduced rate of 10% as a hotel business,” the Treasury adds: “Therefore, tourist rentals should be differentiated from Hospitality services.” In this sense, hospitality services are characterized by the extension of customer service beyond the provision of a property or part of it.”

Is profitability important? Too much. So much so that it is one of the biggest keys to the holiday rental boom in some cities, and the consequences it has for residential rental supply and prices.

This is also acknowledged by the agreement reached by PSOE and Sumar, which states that the 21% VAT on tourist apartments is precisely aimed at “reducing their profitability” and “converting them into permanent rental housing”. This is not an ordinary move. This is not a coincidence. Professor José Tomás Arnau from the European University of Valencia published an article in The Conversation in which he covers the topic in full, based on a rather descriptive title: “Tourist rentals: profitability”. It confused the market.”

“Although long-term rentals offer stability and less day-to-day management, income is generally lower,” said the professor. “If the average gross profitability of residential rentals is around 3.9%, tourist rentals can yield up to 7% (or more in areas with high demand). more)”. However, Arnau reminded that this “higher profitability” also comes with “challenges”, such as reduced supply in the traditional rental market or a sharp increase in prices, especially in the most touristic metropolises.

Why 21% VAT? Not all studies point in the same direction. There are actually some reports that speak to the contrary and conclude that, at least in certain cities, homeowners earn higher returns in the residential or transient market than in the tourist market. Whether or not this is the case, the Bank of Spain itself mentioned the “consolidation” of holiday rentals and its consequences in certain areas in one of its latest sectoral reports.

At the state level and in the housing market as a whole, the Bank of Spain acknowledges that rentals to tourists have a “modest weight” at around 350,000 houses, i.e. 10% of the residential rental market. “However, these houses are concentrated in the main tourist areas, with high rates in the urban areas of the Mediterranean arc as well as rates exceeding 20% ​​in the peripheral areas of the urban areas in the north,” the organization explains. For example, in some neighborhoods of Seville, tourist apartments are 1.5 times larger than residential buildings.

Could it be effective? Million dollar question. The 21% VAT would not be the first move by PSOE and Sumar to ease the impact of holiday lettings on the residential rental market. The government recently announced one of its strategies focusing on another key to the industry: visibility. Its purpose is to ensure that apartments illegally rented to tourists or rented on short-term accommodation contracts cannot be advertised on platforms such as Idealista or Airbnb.

Another of the administration’s latest housing-related measures is the “young rental bonus”, a direct aid for renting a home that has sparked controversy for both its scope and actual effectiveness. The 21% VAT applied to tourist apartments is not entirely new. Sumar suggested this months ago.

What can we expect? Like the measures on the platforms or the youth bonus, the 21 percent VAT implementation also has its light and shadow. As stated in the agreement between PSOE and Sumar, it could “cut” the return on holiday rentals and make them less attractive. Another possibility is that it will be reflected in record levels of costs in the rising tourism market. There are even those who warn about its possible impact on housing prices.

INE itself admits in its latest balance sheets that in the midst of the post-pandemic scenario and with the revival of international tourist flows, Spain has exceeded its foreign visitor target. The proliferation of tourist apartments has led some municipalities and regions to impose moratoriums, tighten conditions or eliminate locations in order to restrict the supply of holiday rental apartments. Barcelona, ​​​​Malaga, Madrid and Sevilla leave current and interesting examples in this regard, although they have quite significant differences.

How is the change proposed? The important measure is the application of the general VAT rate. But it is also very important to understand the context, how it is presented and how it actually proves the road that still lies ahead of us. Currently, the change is included in the agreement reached between PSOE and Sumar on the financial package that the Government wants to promote. And that’s not the only innovation.

The imposition of a 21% VAT on tourist apartments is accompanied by other proposals, such as introducing a tax on luxury goods, increasing the personal income tax by two percentage points on capital income over 300,000 euros, or abolishing the special tax regime for Socimi. It largely targets the real estate market. These are just some of the measures in the package.

The agreement between PSOE and Sumar is important because it means the resumption of negotiations for the General Budget project for next year. There are still difficulties in the processing phase. In fact, the announcement of the agreement came yesterday after the Congressional Finance Committee, which was to vote on the opinion of the bill, which included new tax figures, among other issues, was canceled. The government now has a new date: next Thursday.

Pictures | Ján Jakub Naništa (Unsplash) and the Congress of Deputies

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