The housing rental reduction in PIT: identifying tenants in leases with legal entities
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The reduction for rental income in Personal Income Tax (PIT / IRPF) raises significant tax doubts when the tenant is a legal entity. The High Court of Justice of Madrid (TSJ) (Judgment 294/2025 of 4 July, appeal no. 356/2023) has recently resolved a key question in the application of the housing rental reduction in PIT: when the lease is signed with a legal entity, it is essential to identify the specific individuals who occupy the property as their main residence in order to apply the tax benefit.
Regulatory background to the reduction
Article 23.2 of Ley 35/2006, del IRPF (Personal Income Tax Act, LIRPF) establishes a reduction applicable to the net income derived from the rental of real estate used as housing.
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Before 2015, the general reduction was 60% and could reach 100% in certain cases involving young tenants.
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From 2015, following the reform by Ley 26/2014, the 100% reduction was eliminated, leaving only the general 60% reduction.
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After Ley 11/2021, on measures to prevent tax fraud, the reduction was modulated at 90%, 70% or 50%, depending on compliance with certain requirements.
In any event, the reduction applies only where the purpose of the lease is to meet the tenant’s permanent housing need, with seasonal or tourist lettings being excluded (Articles 2 and 3 of the Urban Leases Act, Ley 29/1994, LAU).
TSJ of Madrid: rental reduction in PIT with a legal entity as tenant
The taxpayer claimed the right to apply the 60% reduction in his 2017 PIT return, providing:
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Five-year lease agreements signed with a company, stating their use as housing.
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A certificate from the administrator of the tenant company confirming that the flats were occupied by individuals.
However, the agreements did not identify the individuals who actually occupied the properties, nor their relationship with the tenant company.
The AEAT denied the reduction on the grounds that the use of the lease as the permanent residence of specific persons had not been established, a position the Court upheld.
The doctrine of the judgment
The TSJ of Madrid concludes that:
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For the reduction under Article 23.2 LIRPF to apply, the property must be effectively used as the permanent residence of an individual.
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If the tenant is a legal entity, it must be established which specific individuals occupy the dwelling and their relationship with the company (for example, employees).
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In the absence of this evidence, the tax reduction does not apply.
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The burden of proof lies with the taxpayer, as the person invoking the tax benefit.
The judgment distinguishes this case from TSJ of Madrid Judgment 581/2011 of 5 July, in which it was established that the agreement with the company had the sole purpose of serving as the main residence of a specific employee and his family, which allowed the reduction to be applied.
Tax implications of the rental reduction in PIT in leases with companies
This position has significant consequences for landlords who let to companies for use by their employees:
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The lease with the tenant company is not enough.
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It is essential to document and identify the occupants (names, tax ID numbers, link with the company) in order to demonstrate that these are main residence lettings.
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Otherwise, the AEAT may reassess PIT and deny the reduction.
Conclusion
The housing rental reduction in PIT requires not only the existence of a lease governed by the LAU and habitual residence, but also effective proof that the property is occupied as the main residence by specific individuals.
Where the tenant is a legal entity, this requirement becomes decisive: without a clear identification of the tenants, the landlord will not be able to apply the reduction.
At Vicens Advisors, as tax advisers in Manacor and Mallorca, we analyse each specific case to optimise the tax position of landlords and tenants, ensuring the correct application of tax benefits and avoiding exposure in future AEAT audits.
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