Concept of real estate capital returns
Regulations: Art. 22.1 Law Personal Income Tax
Full returns of real estate capital are considered to be those derived from the lease or from the constitution or transfer of rights or powers of use or enjoyment over rural and urban real estate or real rights that fall on them , whose ownership corresponds to the taxpayer and are not affected to economic activities carried out by the taxpayer.
The real rights of use or enjoyment of the property include, among others, usufruct, the right of use and habitation, the real right of temporary use of real estate, the right of surface, easements, censuses and emphyteutic census.
The ownership, full or shared, of the right of ownership or real rights of enjoyment over real estate that is not leased or transferred to third parties, nor is it subject to economic activities, does not generate income from real estate capital, but rather gives rise to the application of the special regime for allocating real estate income, with the exception of habitual residences, unbuilt plots of land and rural properties.
See in this regard, within Chapter 10, the heading " Real Estate Income Allocation Regime ", and articles 6.2.e) and 85 of the Personal Income Tax Law .
Other details in relation to the concept of returns on real estate capital
1. Leasing of property as a return on real estate capital
Regulations: Art. 27.2 Law Personal Income Tax
Income derived from leasing of real estate is considered income from real estate capital, unless the leasing is carried out as an economic activity.
For these purposes, it is understood that the leasing of real estate is carried out as an economic activity only when at least one person employed with a full-time employment contract is used for its management.
For the income derived from the lease to be classified as income from real estate capital, the rental must be limited to the mere making available of a property for periods of time, without being accompanied by the provision of services typical of the hotel industry such as They may be: periodic cleaning, linen changing, catering, leisure or other services of a similar nature. If it is accompanied by this type of complementary services, we are dealing with a business activity and the income derived from it will be considered income from economic activities, in accordance with the provisions of article 27.1 of the Personal Income Tax Law .
Consequently, if services typical of the hotel industry are provided by the lessor, we are faced with income derived from economic activities and if such services are not provided, we are faced with income from real estate capital, unless the circumstances provided for in article 27.2 of the Law of the IRPF (that is, a person with a full-time employment contract is available to organize the activity), in which case, the income derived from the lease will also be considered income of economic activities.
Regulations: Art. 25.4.c) Law Personal Income Tax
In the case of subleases, the amounts received by the sublessor are considered income from movable capital .
However, the participation of the owner or usufructuary of the property in the price of the sublease is considered income from the real estate capital , without it being applicable to the net return is the reduction for leasing real estate used for housing, established in article 23.2 of the Personal Income Tax Law , which is discussed later.
3. Leasing of businesses or mines
Regulations: Art. 25.4.c) Law Personal Income Tax
The amounts received from business or mine leases have the tax consideration of income from movable capital .
However, if the lease is only for a business premises , the returns obtained must be classified as real estate capital and quantified applying the rules set forth below. commented in this Chapter.
A distinction must be made between leasing a business premises and leasing a business: If the object of the lease contract is not only movable and immovable property, but also an economic unit with its own entity capable of being immediately exploited, or pending mere administrative formalities to be exploited, the return received will be computed among those from the movable capital. ; If the object of the lease is only the business premises, the return will be considered from the real estate capital.
4. Compensation for early termination of the lease contract
For the owner-lessor, the compensation paid as a consequence of the early termination of the lease is considered an improvement and not a deductible expense for determining the net return on real estate capital. For the tenant who receives it, it constitutes a capital gain whose generation period will be the corresponding one depending on the age of the lease contract.
|Early termination of contract
|Compensation satisfied: Improvement
|Compensation received: Capital gain
|Compensation received: Real estate capital return
|Compensation satisfied: Asset loss
5. Property with simultaneous use or destination in the same period (leased and at the disposal of its owners)
When a property is subject to different successive or simultaneous uses in the same tax period, that is, rented for part of the year and at the disposal of its owner for the rest, the income derived from the lease constitutes income from the real estate capital and that corresponding to the non-leased period. or the non-leased part is considered income imputed by the ownership of the property, as long as it does not become the taxpayer's habitual residence.
The allocation of income for properties that have been during the year, totally or partially, at the disposal of their owners or usufructuaries is discussed in Chapter 10.
The amount of the returns and imputed income will be determined in proportion to the number of days that the properties have been rented or unrented, respectively, within the year.
Income from real estate property, which is not leased or subleased, but which is intended to be so (properties expected to be rented), is taxed as imputed income and expenses corresponding to that period cannot be deducted, to the extent that during it no real estate capital returns are obtained. Interpretative criterion established by the Supreme Court in its Sentence number 270/2021, of February 25 (ROJ: STS 910/2021).
6. The leasing of common elements of a building
The leasing of common elements of a building, such as, for example, part of the façade or roof, by the community of owners gives rise to returns on real estate capital that will be attributed to the co-owners according to their participation in the community.
The regime for attributing income obtained by certain entities, including communities of owners, is discussed in Chapter 10.