It is increasingly common to include renovations in rental agreements within a contract. Although it may seem like an advantage, this type of agreement has tax implications that many property owners are unaware of.

How renovations are considered within the rental

In some rental contracts, the tenant does not only pay a monthly rent but also carries out works on the property. This happens, for example, when the property needs renovation and both parties agree to compensate it this way.

The most common question is whether these works count as payment. For tax purposes, yes. The tax authorities consider them part of the rental price, even if there is no direct payment in money.

This means it is not an “extra” benefit, but income that must be declared as rental income.

How these agreements are taxed

When renovations are included in the rental, they are considered payment in kind. This means that the owner must declare them within the rental income tax.

Another common question is when it is taxed. It is not declared in a single year. Normally, this income is distributed over the duration of the contract, allowing a more gradual tax impact.

Even so, it is important to consider that this type of agreement may also affect VAT on rentals, depending on the case.

What owners should consider before accepting renovations

Accepting renovations as part of the rent may seem attractive, but it is not always the best option.

The owner does not receive money directly but still has to declare that value as income. Therefore, it is key to calculate whether it really makes sense within the rental profitability.

It is also important to define the real value of the renovation. If it is not clearly stated in the contract, it may lead to tax issues.

How it affects real estate investment in Costa Blanca and Mar Menor

In areas such as Torrevieja, Orihuela Costa, Pilar de la Horadada or Mar Menor, this type of agreement is becoming more common, especially in properties that need updating.

For investors, it can be a way to improve the property without assuming all the initial cost within a strategy of real estate investment in Spain. However, the key point is understanding the tax impact and how it affects real profitability.

An operation that seems profitable may not be if taxes are not taken into account.

What to consider before signing

Before accepting a contract where the tenant carries out renovations, it is important to clearly define how the renovation will be valued, how it will be declared, and its impact on the final result.

Each case is different, and poor planning can directly affect profitability.

At Munfort, we work with owners and investors in Costa Blanca South and Mar Menor, analysing these situations to make clearer and more profitable decisions.