New Supreme Court ruling paves the way for tenants to pay IBI and basura tax

Raymundo Larraín Nesbitt, September, 1. 2026

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By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
1^st of September 2026

Introduction

Spain’s Supreme Court delivered a ruling last November which marks an inflection point on who pays what taxes in a rental agreements. This is a new ruling which bolsters the position of landlords in detriment of tenants.

Going forward, landlords can agree with their tenants that the latter will pay for both IBI and basura tax.

Unfortunately, the timing of the ruling is not the best, as the price of home rentals are already at an all-time high due to the government’s misguided housing and rental policies which cut back supply and drive prices relentlessly upwards.

Meaning tenants, which were already under a huge financial pressure to meet the market price of eyewatering rentals will now have to come up with thousands of extra euros a year to pay for these two taxes.

STS 1637, of the de 17th of November 2025

The new ruling opens the door for these two taxes to be passed on to tenants, even if the rental contract does not specify the exact amounts to be paid.

Art 20.1 LAU

Spain’s Tenancy Act, which rules on long term rentals, already contemplated the possibility for landlords to pass onto their tenants these two taxes. However, consolidated case law demanded that the rental agreement had to specifically determine the amounts contractually for it to be upheld legally.

Town halls where a property is located are the ones empowered to calculate and levy these two local taxes.

Whilst in theory this sounded good, in practice it was not feasible as one could never know ahead of time the exact amounts charged by them. So, in truth, very few rental agreements were able to specify said amounts.

Property boom – updated cadastral valuations translate to higher IBI tax

As mentioned in the article’s introduction, the misguided housing and rental policies the government pursues stifle supply (whilst demand, both foreign and domestic remains strong). This translates into artificially, and dramatically, increase property (and rental) prices across the board in Spain.

Town halls in Spain have devolved competencies on taxation matters which include IBI and basura tax. Beset by falling revenue and increased expenses, they are capitalising big time on the government’s fostered property boom by way of updating cadastral values like there is no tomorrow. Cadastral valuations are taken as reference to determine all property-related taxes, including IBI tax.

As explained in previous articles, IBI tax has dramatically risen all over Spain in the past years to bring cadastral valuations more in line with current property market values. This translates into owners paying much higher property-related taxes, such as IBI and basura. With this new Supreme Court ruling, the door has been left ajar for them to pass on these increased costs to their struggling tenants.

Conclusion: Cui bono?

This ruling, although welcome, could not come at a worst time for tenants.

Tenants – all over Spain – already face a Sisyphus struggle to secure a property that puts the Squid Game to shame. On average, for every property rented offered, there is 300 people interested in large cities. If on top of this, they are now expected to also pay for IBI and basura tax (which on average is a few thousand euros a year) it may be the straw that breaks the camel’s back.

Despite the government’s ongoing narrative that it loftily pursues housing (and rental) policies to assist and alleviate vulnerable collectives (such as elder people, low-income families, and single mothers), its actions are causing the opposite effect.

Whilst a young administration can - and should - be excused for a faux pas on the first couple of years of its ruling by following its elected political agenda, it cannot be excused in an administration that is on to its eighth year. These misguided housing and rental policies are plain to see - by everyone – and are a clear example of the emperor has no clothes.

Long story short, Spain’s government has adopted misguided housing and rental policies that target demand instead of supply. This translates into higher prices across the country (the property boom we are now is fostered by the government’s unwavering interventionism) in detriment of natives, and particularly of the very vulnerable collectives it vocally sought to protect.

But, hang on. Why would Spain’s government follow policies that overtly damage the very collectives it seeks to protect? This makes no sense. Or does it?

In Law we have a great saying: Cui bono? Who benefits from a given action.

Who stands to gain more from all the red tape chaos, increased property prices, increased rental prices and growing miscontent? Well, you’d be surprised to learn it’s actually the Spanish government.

Now this is only my personal opinion, so take it with a grain of salt, but the incumbent administration benefits twofold:

Higher property prices translate into higher taxes, which in turn increases the government’s tax coffers. Taxes make up for 35% of a property’s price. Spain’s Tax Office has broken again, for its seventh year in a row, its own record tax revenue this last year with over 325 billion euros. In addition, Spain is the only country in the OECD (38 countries) who does not bother to deflate tax rates in line with rampant inflation to, precisely, increase its tax revenue by the back door. In plain English, the higher the property prices, the more the Spanish government stands to gain by way of higher taxation. Meaning the government can now spend more money in idle things, such as its pet program the Ingreso Minimo Vital (you get paid to do nothing). 3 million people in Spain already benefit from this lenient government handout, and the number of applicants has risen by 17% only on the last year. A sarcastic person - God forbid - would think this is simply a program to buy and attract votes and is not being done for altruistic reasons. You don’t bite the hand that feeds you.
The ongoing high property and rental prices create a huge social discontent. Moreover, Spain’s housing problem has become the number one problem for Spanish people following social polls, even ahead of high unemployment or unchecked migration It is no secret that a growing number of people are growing angry at the situation, especially by young people, which is getting out of hand whilst those in places of power duck their heads in the sand ignoring it or even going as far as to deny there is a problem (Bank of Spain Governor declares property prices are still 18% under their true value). Call me jaded, but all this growing discontent can be politically capitalised and reconducted to vote for the incumbent administration. Let us not forget that in 2027 we have a general election. In plain English, social discontent can be harnessed for political gain by the government. Ironically, the more social discontent, the more votes.

The Spanish housing problem is no longer a matter of political ideology (conservative vs. progressive) it’s a matter of good administration and economics, plain and simple.

Supply must be increased, there is no question about it; more houses need to be built (and I’ll plug in, as always, that taxes must be lowered). Spain has a huge housing deficit of 750,000 units not factoring the 3 million new migrants the government allowed in last month (1.3 million officially plus a further 2 million when the family regroupment policy entitlement kicks in) with its new regularisation policy. Honestly, you couldn’t make it up.

My grandmother had a great saying: "Don’t pay attention to what people say, pay attention to what they do."

Power and politics. And in this case, the government’s words don’t match its own actions.

Cui bono indeed?

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