Taxation of rental properties in Spain

The tax implications of renting out a Spanish property

Introduction

There are various situations to consider:

1) you receive rental income from a Spanish property but are not resident in Spain.  For example if you buy a holiday home which you use but occasionally rent out.

2) If you are Spanish tax resident and receive rental income from a property in Spain (other than your own home) or one abroad

3) You live in Spain but rent part of your property out to holidaymakers

First, non residents who own holiday homes which they rent out.

The rental income of non Spanish residents should be declared in Spain even it is properly declared in the country where you are tax resident (e.g. the UK which does expect its residents to declare any income from holiday rentals).

There is a special form for non resident Spanish property owners called modelo 210 and the rent should be declared on one of these forms every time some is received.  Alternatively you can group all the rentals from a quarter together e.g. 1st April - 30th June and declare on one form.

If you jointly own the rental property with someone else (e.g. your spouse) both must submit forms.  The names and NIE numbers of the people who rented the property should be included, along with the amounts involved and expenses that can be deducted.  Typically deductible expenses might be community fees and rates.  Tax is then charged at a flat rate of 24.75%.  Forms must be in 15 days after the quarter end.

One issue that can occur with non-resident rentals is that the property is only rented out for part of the year, maybe even only a few weeks in the summer.  In this case the rent must be declared in the manner described above but the period during which there is no rental is also subject to a separate tax - the non resident tax that all holiday home owners who don't rent out their properties face (see this article Spanish Tax Form 210)

Note that UK taxpayers who declare the income on both their Spanish and UK tax returns can make a double tax claim to prevent them being taxed twice. This is made on the UK return and is equal to the Spanish tax paid or the UK tax liability whichever is the smaller.

Spanish tax residents who rent out a property other than their home

If you have a property you rent out in Spain and live in Spain yourself you will have to declare the income on your Spanish tax return (declaracion de la renta de las personas fisicas) every year, in the May-June period following the year of the rental i.e. in arrears.

The tax treatment is generous:

    • - there are deducible expenses allowed (e.g. utilities, advertising and legal costs, rates, and even interest and amortisation of the property)
    • - there is a 60% deduction if the property is rented out as a dwelling (as opposed to a business)

If the property is abroad then the same rules apply - deductions are allowed as above. If the property has already been taxed in the country where it is situated and this tax is more than the tax you would pay in Spain, it has in the past been common to leave it off your Spanish tax return, as no tax would be due. The has been the traditional approach for UK property, due to the complications introduced by the different tax year ends in the UK and Spain. However, in the light of the new overseas asset reporting requirements introduced in 2012, it may be advisable in future to include the income and the tax paid on your return, even if no tax results.

Anybody who does not declare their rental income should be aware that this is one of the Spanish tax authorities biggest targets for cracking down on tax evasion and the consequences can be quite severe if found out.  One way the authorities netted several hundred thousand tax evading landlords was to introduce a rule whereby anyone claiming a tax deduction for rent paid has to include the name and NIE of the landlord on their tax return.  Every year the authorities crosscheck to see that anyone who is named as a landlord by someone claiming a tax deduction is declaring the income and paying tax.

Spanish tax residents who rent out their own property

Many people settling in Spain make extra money by running a holiday rental business based in their own property (e.g. converted outbuildings).  The tax rules are more or less the same as those described above (i.e. rent from short term tourist lettings is treated much the same way as long term lets). There are one or two points to consider:

- any claims for expenses must relate solely to the rental; you cannot rent out a granny annex for a few weeks and subsequently claim every item of household expense for the entire year. In fact if you live in the property it will be very hard to claim anything for utilities or rates for example as these would have been payable anyway as you live there and you are not allowed to start apportioning bills.

- other issues can arise when the rental turns into a business.  For example if you begin running a holiday business from your property which involves more than just renting out accommodation then you should register as self-employed.  There is a grey area between renting out and running a business but the distinction is usually made on the basis of what extras are included for the renter.  If they just receive a room then clearly you are just the landlord renting out space.  If they are offered services over and above this like food or leisure/educational activities then you are probably running a business.

See also How to rent out your Spanish property online and   Spanish income tax