Buy-to-Let Tax Deductions in Europe: What Landlords Can Claim

Smart tax planning can transform a marginally profitable rental property into a strong investment. Most European countries allow landlords to deduct significant expenses from rental income — but the rules vary dramatically by country.

France: The LMNP Advantage

Micro-BIC Regime

For furnished rental income under €77,700/year:

• 50% flat-rate deduction (you're only taxed on 50% of rental income)
• No actual expense tracking needed
• Simple to manage

Réel Regime (Real Expenses)

For higher income or when actual expenses exceed 50%:

Deductible expenses:

• Mortgage interest (not principal)
• Property depreciation (building: over 20-30 years, furniture: 5-10 years)
• Co-ownership charges
• Property tax (taxe foncière)
• Insurance
• Repairs and maintenance
• Management fees
• Accounting fees
• Travel expenses related to the property

The depreciation benefit is powerful: you can deduct the building value (excluding land) over 20-30 years, significantly reducing taxable income — often to zero.

Spain: Long-Term Rental Benefits

Standard Deductions

• Mortgage interest
• Depreciation (3% of construction value annually)
• Repairs and maintenance
• Property tax (IBI)
• Insurance
• Community charges
• Management and legal fees

60% Reduction

For long-term residential rentals (1+ year contracts), 60% of net rental income is exempt from tax. This effectively reduces your tax rate significantly.

Germany: Depreciation-Focused

Deductible Expenses

• Mortgage interest
• Building depreciation: 2% of building value annually (for buildings built after 1925), 2.5% for older buildings
• New buildings (2024+): 3% accelerated depreciation
• Maintenance and repairs
• Property management fees
• Insurance
• Property tax (Grundsteuer)
• Travel to the property

Special Depreciation (Sonder-AfA)

New rental constructions may qualify for additional 5% depreciation per year for the first 4 years — in addition to the standard 2-3%.

Portugal: Incentivizing Long-Term Rentals

Tax Rates on Rental Income

Portugal's system rewards longer leases:

Contract duration	Tax rate reduction
1-2 years	Standard (28% or progressive)
2-5 years	10% reduction
5-10 years	15% reduction
10-20 years	20% reduction
20+ years	30% reduction

Deductible Expenses

• Condominium charges
• Property tax (IMI)
• Insurance
• Maintenance and repairs (limited to the last 24 months before rental start)
• Energy efficiency improvements

UK: Post-Section 24

Since the Section 24 changes, individual landlords can no longer deduct mortgage interest as an expense. Instead:

• 20% tax credit on mortgage interest (regardless of your tax bracket)
• Full deduction available for corporate landlords (Ltd company structure)

Deductible Expenses (Individuals)

• Letting agent fees
• Insurance
• Maintenance and repairs (not improvements)
• Council tax (when between tenants)
• Accountancy fees
• Travel to property

Capital Allowances

• No building depreciation for residential property in the UK
• Furnished Holiday Let regime (if property qualifies) offers capital allowances

Italy: Cedolare Secca

Flat Tax Option (Cedolare Secca)

• 21% flat tax on rental income for long-term contracts
• 10% reduced rate for properties in high-tension housing markets (concordato contracts)
• No additional expenses deductible (it's a flat tax on gross income)
• No VAT, registration tax, or stamp duty on the lease

Standard Regime

If you opt out of Cedolare Secca:

• Rental income taxed at progressive rates (up to 43%)
• But you can deduct a 5% flat-rate expense allowance
• Limited additional deductions available

Key Takeaways for Investors

1. France LMNP is the most powerful regime for furnished rental — depreciation often eliminates tax entirely
2. Spain's 60% reduction for long-term rentals makes it attractive for stable rental income
3. Germany's depreciation is generous, especially with the new 3% rate for new builds
4. Portugal rewards long leases — the longer your contract, the lower your tax rate
5. UK investors should seriously consider a Ltd company structure for new purchases

Always consult a local tax professional. Tax laws change frequently, and incorrect filing can result in penalties.

---

Find profitable rental properties. Try FilterWise free — AI-powered analysis with yield calculations built in.