How will the new tax scale reduce rental income tax in 2027?
The primary mechanism for the upcoming tax reduction is the introduction of an intermediate tax bracket designed to lower the burden on middle-income property owners. For more than 160,000 taxpayers with annual rental income exceeding €12,000, the new scale will effectively 'clip' the tax bill during the 2027 settlement period.
Previously, the jump between lower and higher tax rates was more abrupt. The revised structure introduces a 25% rate for income falling within the €12,000 to €24,000 range. The full breakdown of the new scale is as follows:
- 15% for income up to €12,000.
- 25% for the portion of income between €12,000 and €24,000.
- 35% for the portion between €24,000 and €36,000.
- 45% for any income exceeding €36,000.
To illustrate the impact, consider a landlord with an annual taxable rental income of €20,000. Under the previous regime, the amount above the initial threshold would have been taxed at a higher rate. Under the new rules, only the €8,000 exceeding the €12,000 mark is taxed at 25%, resulting in an €800 saving compared to the old system. For those earning exactly €24,000, the total tax liability drops from €6,000 to €4,800, representing a maximum benefit of €1,200 for this specific bracket.
What is the 3-year tax exemption for long-term rentals?
Landlords can achieve a 100% tax exemption on rental income for a period of 36 months if they move properties from short-term (Airbnb-style) use or from a vacant status into the long-term rental market. This incentive is designed to increase the stock of permanent housing available to residents.
The exemption covers the entirety of the rental income collected during the first three years following the signing of the lease agreement. For instance, if a landlord rents out a previously vacant home for €700 per month, they could collect a total of €25,200 over three years without paying any income tax on those specific earnings, provided all regulatory conditions are met. This specific incentive has been extended until the end of 2027, giving owners more time to participate in the program.
Comparing the financial impact of tax scales vs. full exemptions
While the new tax scale provides a steady reduction for many, the full exemption represents a much more aggressive fiscal stimulus. The scale change is a permanent structural adjustment to the tax code, whereas the 36-month exemption is a targeted incentive for specific behavioral changes in the real estate market.
| Feature | New Tax Scale | 3-Year Full Exemption |
|---|---|---|
| Primary Benefit | Reduction of €100 to €1,300 | 0% tax on rental income |
| Duration | Permanent structural change | 36 months from lease start |
| Target Group | Income between €12k and €36k | Transitioning Airbnb/Vacant homes |
| Application | Automatic via tax settlement | Requires meeting specific criteria |
What are the strict requirements to qualify for the exemption?
To secure the three-year tax-free status, landlords must adhere to several strict criteria regarding property size, lease duration, and previous usage. Failure to meet even one of these parameters can disqualify the owner from the benefit.
The following conditions must be satisfied:
- Property Size: The residence must have a surface area of up to 120 square meters. However, this limit increases by 20 square meters for every dependent child of the tenant beyond the first two. For example, a family with three dependent children can qualify for a property up to 140 square meters.
- Lease Duration: The long-term lease contract must be for a minimum of three years.
- Contract Timing: Contracts must be signed between September 8, 2024, and December 31, 2027.
- Vacant Property Proof: For previously empty homes, the property must have been declared vacant in the E2 form or met the necessary non-use requirements for the preceding three tax years.
- Airbnb Transition: For properties moving from short-term rentals, the home must have been used exclusively for short-term stays during the previous tax year, and all such rentals must have been declared to the tax authorities.
Are there any special exceptions for specific professions?
Certain categories of tenants are granted more flexibility to qualify for the tax exemption, recognizing the social necessity of providing housing for essential public service workers. These exceptions allow for shorter lease durations under specific circumstances.
Landlords renting to the following professionals can benefit even if the lease is shorter than three years, provided it lasts at least six consecutive months:
- Doctors and nurses employed by General Government agencies.
- Educators at all levels of public education.
- Active members of the Armed Forces and Security Forces.
Furthermore, the exemption remains valid even if the property becomes vacant once during the three-year period. If the owner re-rents the property under a long-term lease that meets the standard requirements, the tax benefit continues for the remainder of the original three-year window rather than resetting to a new three-year cycle.
When does a landlord lose the tax exemption?
The tax exemption is contingent upon the property remaining in the long-term rental market for the full duration of the commitment. If an owner decides to revert the property to short-term or Airbnb-style usage before the three-year period concludes, the benefits are revoked.
The loss of the exemption is retroactive. This means the landlord will be required to pay income tax on all rents collected from the very first year of the lease. This provision serves as a safeguard to prevent owners from using the exemption as a temporary measure while intending to return to the more lucrative short-term market shortly after.
Frequently asked questions
How much can a landlord save with the new tax scale?
Savings typically range from €100 to €1,300 per year. The exact amount depends on the total annual rental income. For example, an owner with €24,000 in annual rental income would see their tax burden drop from €6,000 to €4,800 due to the new 25% intermediate bracket.
Can I still get the exemption if my property is larger than 120sqm?
Yes, if the tenant has multiple dependents. The 120 square meter limit increases by 20 square meters for every dependent child of the tenant beyond the first two. A family with three children, for instance, qualifies for properties up to 140 square meters.
What happens if I move a property back to Airbnb after two years?
If you return the property to short-term rentals before the three-year period ends, you lose the exemption retroactively. You will be required to pay the income tax that was previously waived for the entire duration of the long-term lease.
Is there a deadline to sign a new long-term lease for the exemption?
The deadline to sign a qualifying long-term lease contract has been extended to December 31, 2027. This extension provides landlords with more time to transition their properties from short-term or vacant status to long-term rentals to claim the 36-month exemption.
Does the exemption apply to all types of long-term rentals?
The exemption specifically targets properties transitioning from being vacant or being used for short-term (Airbnb) rentals. To qualify, the property must meet the specific size and usage history requirements, such as being declared vacant in the E2 form for the previous three years.
Key takeaways
- The new tax scale introduces a 25% bracket for income between €12,000 and €24,000.
- Landlords can save between €100 and €1,300 annually under the new scale.
- A 36-month full tax exemption is available for transitioning properties to long-term leases.
- The deadline for signing qualifying lease contracts is December 31, 2027.
- Retroactive tax penalties apply if a property returns to short-term use early.
The shift toward long-term housing stability
The 2027 fiscal changes represent a dual-track approach to real estate taxation. By lowering the tax burden for middle-income landlords through a restructured scale, the government provides immediate relief to a large segment of property owners. Simultaneously, the aggressive 36-month exemption for transitioning properties serves as a strategic tool to address housing shortages. While the rules are stringent—particularly regarding property size and the risks of retroactive taxation—the policy clearly prioritizes the conversion of short-term and vacant stock into stable, long-term residential options.
