Pablo Herrero is a self-employed programmer who works from the flat he owns and lives in, in Granada, which measures 90 m². He has turned the second bedroom, of 13.5 m², into a study that he uses only for work: a desk, two monitors, a filing cabinet and nothing else. He pays electricity, gas, fibre broadband and water totalling 2,400 € a year, 540 € of IBI (the Spanish annual property tax), 720 € in community charges and the interest on his mortgage. His previous adviser told him that "you can't deduct anything for your home", and an acquaintance assures him he can deduct half of everything. Neither is accurate.
First, partial assignment
The IRPF Act (on Spanish personal income tax) allows only part of a property to be assigned to the activity. Article 29.2 provides that, when an asset serves the activity only in part, the assignment is limited to the part actually used in it, and that indivisible items cannot be assigned in part. Article 22.3 of the Regulations adds that only parts capable of separate and independent use from the rest are treated as assigned.
A home is divisible in that sense: a specific room, used exclusively for the activity, can be assigned. The living room where you work in the mornings and watch television in the evenings cannot. Assignment requires exclusive use of that part, not a division by hours.
It all begins with Modelo 036
The tax registration includes identifying the premises where the activity is carried on and, in the case of a home, the floor area used for it. Declaring the assigned square metres there is the first piece of evidence. If Pablo filed his 036 without saying that he works from home, or without the floor area, he should file an amendment before deducting anything.
If you are still preparing your registration, you can give the floor area and use of the study in the self-employed registration form, so that they appear in the tax registration from the start.
Two different rules depending on the type of expense
This is where the confusion comes from. The law does not treat the property's costs and the utilities in the same way.
Costs linked to owning the property. IBI, community charges, home insurance, loan interest and depreciation of the building are costs that arise from having the home. Once part of it is assigned, they are deducted in proportion to the assigned square metres, because that part is an asset of the activity.
Utilities. For electricity, water, gas, telephone and internet, article 30.2.5.ª b) of the IRPF Act lays down a specific rule: when the taxpayer assigns part of their main home, these expenses are deducted "in the percentage resulting from applying 30 per cent to the proportion between the square metres" used for the activity and the total floor area, unless a higher or lower percentage is proved.
| Expense | How it is shared | Rule |
|---|---|---|
| IBI, community charges, insurance | Proportion of assigned square metres | Arts. 29 LIRPF and 22 RIRPF |
| Loan interest | Proportion of assigned square metres | Arts. 29 LIRPF and 22 RIRPF |
| Depreciation of the building | Proportion of assigned square metres, excluding the land | Depreciation rules |
| Electricity, water, gas, telephone, internet | 30 % of the proportion of assigned square metres | Art. 30.2.5.ª b) LIRPF |
LIRPF is the IRPF Act and RIRPF its Regulations.
Pablo's figures, step by step
- Total floor area of the home: 90 m².
- Assigned area, the study used exclusively for work: 13.5 m².
- Assigned proportion: 13.5 ÷ 90 = 15 %.
- Deductible IBI: 540 × 15 % = 81 €.
- Deductible community charges: 720 × 15 % = 108 €.
- Percentage for utilities: 30 % of 15 % = 4.5 %.
- Deductible utilities: 2,400 × 4.5 % = 108 €.
- Mortgage interest and depreciation: 15 % of each, calculated from the loan schedule and the value of the building according to the title deed or the land registry valuation.
Without interest or depreciation, Pablo would deduct 297 € a year for the costs of his home. It is a modest amount, and that is the first lesson: with the 30 % rule, household utilities are rarely a significant expense. Depreciation and interest, on the other hand, can be if the home is owned and mortgaged.
A telephone or fibre line just for work
The 30 % rule refers to the home's utilities. If Pablo takes out a mobile line or a second internet connection exclusively for the activity, with the bill in his name and with his tax number (NIF), that expense is not shared with the home: it is deducted in full, because it is entirely assigned. Proving exclusive use is up to him, and it is advisable for the contract to be separate from the household one.
Assigning part of your main home to the activity has consequences when you sell. The assigned part is not treated in the same way as the main home for the purposes of the reinvestment exemption, and the depreciation deducted reduces the acquisition value of that part. Before deducting depreciation and interest, it is worth considering whether you plan to sell the home in the following years and what that will mean. We cannot guarantee that the annual saving will always outweigh the future effect.
If the home is rented
If Pablo lived in rented accommodation, the reasoning would be the same: the proportional share of the rent he pays for the assigned square metres would be an expense of the activity, and the utilities would still follow the 30 % rule. It is worth checking the tenancy agreement, because some prohibit carrying on activities in the home, and that breach, although not a tax matter, can create a problem with the landlord.
And the VAT on utilities
The VAT charged on the electricity or internet bill of a home also used privately raises a different problem, because the deduction rules in the VAT Act require services to be directly and exclusively assigned. Partial deduction of the VAT on household utilities is disputed territory. If you choose to deduct it, do so with caution and knowing that it may be challenged in a check. The details of Modelo 303 (the VAT return) and its boxes for VAT borne help to identify where it is entered.
What to keep
For the deduction to stand up, Pablo should keep:
- the 036 with the assigned floor area declared;
- a plan or measurement of the study and of the home;
- photographs of the space showing its exclusive use;
- the utility bills in his name;
- the IBI receipt and the community charge receipts;
- the loan repayment schedule, if he deducts interest.
The deduction in article 30.2.5.ª b) refers to the main home. If you work from a second home or from business premises, the rules change. For expenses incurred before you start invoicing, see can I deduct what I spent before registering, and for the way these expenses reduce the quarterly payments, the guide to Modelo 130.
At Salama Tax we declare the assigned floor area in the tax registration and apply the two sharing rules to the home's bills every quarter, so that what is deducted in the instalment payments matches what is later declared in the income tax return.