Short-term lettings down by 25 per cent: profitability hit by the new flat-rate tax scheme
Holiday rentals are subject to tax rates of up to 26 per cent, on top of which there are additional costs and commissions: revenue will need to be at least double that amount to achieve the net return guaranteed by the 1 per cent tax rate
Key points
A tax incentive for long-term tenancies compared with short-term ones. A significant incentive, which will amount to up to 20–25 percentage points, depending on the circumstances, and which in many situations may influence taxpayers’ decisions. The measures that the Budget Law will introduce regarding tenancies from 1 January next year should also be viewed through the lens of tourist lettings; following a series of restrictive measures (the national identification code, the 26 per cent flat-rate tax, the presumption of commercial activity), the budget is taking the path of incentives and, rather than discouraging short-term lets, this time it seeks to put some money in the pockets of those who opt for agreed rents.
A preliminary note: the text of the draft Budget Bill has not yet been tabled in Parliament. Certain technical provisions will be crucial to understanding the impact of the new measures on rents. It is, however, possible to make some initial assessments.
What’s new
Leaving aside ordinary taxation under the IRPEF scheme, under the new system there will be four flat-rate tax brackets for long-term tenancies: the first at 1 per cent for rents agreed for those under 35, the second at 5%, applicable generally to new agreed rents; the third at 10% for existing rent-controlled contracts; and the fourth at 21% for unregulated rents. Short-term lettings, on the other hand, have two flat-rate tax regimes: one at 21 per cent for income from the first property and the other at 26 per cent for income from a second home used for this purpose. From the third property onwards, the presumption of business activity (a VAT registration must be obtained, with the associated administrative obligations, and the landlord may choose between the ordinary or flat-rate schemes).
The percentages alone already speak volumes, but a few simulations illustrate the benefits for landlords even more clearly. Let’s start with a monthly rent of one thousand euros, or 12,000 euros a year. Under the 10 per cent flat-rate tax, they would have paid 1,200 euros in tax; with the 5 per cent rate, they will pay 600 euros, which is set to fall to 120 euros under the 1 per cent rate. Landlords will save up to 1,080 euros compared with the current rate.
This is, however, a theoretical comparison, as it will not be possible to transfer existing contracts. Back in 2019, when the flat-rate tax on shops, an anti-avoidance clause had been included which excluded contracts in force as at 15 October of the previous year, which were subsequently terminated and renewed between the same parties.
