Does the tax reform affect individual investors in real estate?
In recent months, the tax reform approved by the Spanish government has sparked intense debate, affecting various areas of the economy, including real estate. The sector, which contributed almost 177 billion euros to Spain’s GDP according to the National Statistics Institute (INE), has faced significant uncertainty as these tax changes could negatively affect them, with a higher tax burden.
In this context, the changes have raised concerns among small real estate investors, who are asking: What changes does this reform introduce? How will it affect their investments? And, most importantly, how can they continue to identify profitable opportunities in such a dynamic environment?
Context: Key changes in the tax reform
The proposed tax reform from November 2024 introduces several significant changes that impact the real estate market. According to the IEB, one of the most notable aspects is the modification of the taxation of listed real estate investment companies (socimis). Although it was proposed that socimis would be taxed at 15% on undistributed profits, this measure was not approved in Congress and the proposal to modify the tax regime of socimis was rejected during the tax reform process.
However, the government recently announced its intention to limit the tax benefits for socimis that invest in housing, applying them only to those offering affordable rents. This fiscal adjustment will not apply to socimis operating in other sectors, such as commercial or logistics. Therefore, these types of socimis will continue to benefit from their special tax regime, which allows them to be taxed at 0% on corporate tax, as long as they meet certain requirements, such as distributing at least 80% of their profits in dividends.
In this regard, Diego Sánchez de la Cruz, economic analyst, states that “ultimately, the taxation of residential socimis has been affected, in line with the government’s plans. This increase may impact small investors, who would lose access to a common investment vehicle in many developed economies, which in fact serves as a tool to finance the development of new housing.” Furthermore, he points out that “the most harmful measures for the real estate sector had been negotiated with Sumar and did not succeed in the final agreement. The shadow of legal uncertainty remains and is weighing on the sector’s performance.”
Implications for individual investors
For small investors, these changes have relevant implications that must be taken into account when planning new operations or managing existing ones.
First, the reform introduces an increase in the taxation of capital gains from the sale of properties. This means that when selling a property, the investor will need to allocate a higher percentage of their profits to taxes. Therefore, it will be crucial to conduct a more thorough analysis of the expected net return before making any transaction.
On the other hand, the reduction of the property transfer tax (ITP) for young investors represents a great opportunity for those who meet the requirements. This measure not only reduces the initial acquisition cost but also improves the long-term performance of investments. If you are under 40 years old and are considering buying a property, this could be the ideal time to take the plunge.
Regarding the overall impact of these measures on the promotion of new construction, Sánchez de la Cruz points out that “there have been no changes that will significantly relaunch the development of new construction. The key to substantially increasing new construction promotion lies in mobilizing land and reducing bureaucratic hurdles, as well as the timelines for urban planning processing, so it is up to regional governments to break away from the current paradigm.”
The reform also includes incentives related to energy efficiency and housing rehabilitation. According to Royal Decree 9/2024, deductions for investments in heating, air conditioning, and energy consumption reduction in homes have been extended until December 31, 2025. Additionally, until December 31, 2026, deductions for energy rehabilitation apply.
In this sense, the expert acknowledges that “these measures are welcome, but their impact has been very limited so far, as they are part of a broader context in which too many measures have been adopted that increase the tax burden on taxpayers and businesses to which this incentive is now offered.”
Key points for declaring investments with Urbanitae
Understanding the fiscal impact of these reforms on our investments is crucial. In this regard, these changes seem not to affect how investments in real estate crowdfunding platforms like Urbanitae are taxed, but with the 2024 tax season just around the corner, it is important to consider how to declare the profits obtained from this type of investment:
First, the profits obtained through Urbanitae are considered capital gains and are taxed under personal income tax (IRPF) within the savings base, with tax rates ranging from 19% to 26%, depending on the amount obtained. If you sell your shares before 12 months, the earnings are included in the general IRPF base, which could result in a higher tax rate.
As for any dividends you may receive from the projects, they must also be declared as income from movable capital. These are taxed within the savings base at rates ranging from 19% to 23%, depending on the total income.
If any of the projects have not generated the expected profits, you can offset the losses with other capital gains, thus reducing your taxable base. Additionally, if you cannot offset the loss in the same fiscal year, you can carry it forward to future years.
Finally, Urbanitae will provide you with all the necessary documentation, such as profitability reports and earnings, to make the process easier. If you have any doubts, it is advisable to seek advice from a tax expert to ensure that your declaration is correctly filed.