British nationals are by far the largest group of foreign homeowners in Spain. Many keep their property as a holiday home or only live there part time, either renting their property to other holiday makers or long term tenants for some of the year. For many, this is a valuable source of income. However, as most are well aware, this income is taxable. Subsequently, our clients often ask us about tax on rental income if they’re not resident in Spain. Sure enough, have to pay tax somewhere, but should it be your country of residence or Spain? Or are you expected to pay in both? In this article, we answer your questions about paying tax on rental income.
We would like to remind you that taxation in Spain can be complicated and you could be subject to fines or penalties if you miss a deadline or don’t do your taxes properly. Advisably, you should seek fiscal advice from an expert to avoid possible complications.
Spanish tax on rental income
Primarily, it is important to know that you have to pay tax on rental income in Spain even if you’re not a resident. The Spanish Tax Authority collects taxes on rental income quarterly, on the following dates:
- First quarter, 20th April (January, February, March)
- Second quarter, 20th July (April, May, June)
- Third quarter, 20th October (July, August, September)
- Fourth quarter, 20th January (October, November, December)
However, there are allowances for some expenses. These include a proportional part of the house insurance, IBI, the community fee, property repairs, cleaning, property management fees, and water and electricity if paid by the house owner. You can even claim expenses against mortgage interest and the lawyers fees for the completion of your tax return.
When you lease your property and pay tax on the income, adjustments are made to the calculation according to regular non-resident tax. The amount of this tax is then based only on the number of days the property was unoccupied by tenants. However, it is important to note that you can only claim expenses against rental income if you are a resident of the EU, Norway or Iceland.
The British/Spanish dual taxation agreement
However, British homeowners will be relieved to hear that Spain and the UK have a dual taxation agreement. This means that you are not required to pay tax on the income in both countries. Although you have to declare your income in the country within which you are tax resident, you don’t have to pay twice. Instead, the tax you have already paid in Spain is deductible as double taxation.
Spanish tax on rental income: Rates
The Spanish government introduced changes to the amount of tax that non-residents have to pay from the 1st of January 2016. The changes that non-residents should be aware of include:
- For the year 2017, the Spanish rental income tax remains at 19% for those non-residents who are tax resident in a country within the European Union, Norway and Iceland and 24% for tax residents outside these areas.
- A lowering of non-resident income tax for the period 2016 from 19.5% to 19% for those non-residents who are tax resident in a country within the European Union, Norway and Iceland and 24% for tax residents outside these areas.
It is important to note that the amount of Spanish tax on rental income you pay as a non-resident is dependent on the country in which you are currently fiscal resident and not your nationality. There have been cases, for example, where British nationals have moved to a country outside the EEC. Consequently, their Spanish property is subject to heavier taxes. Furthermore, it is essential to keep abreast of developments regarding Brexit. To ensure you have a clear understanding of the potential changes, contact your solicitor.
Rent out your home with confidence
Letting out your property in Spain is a good option for many British homeowners. Not only does it provide a good source of steady income, it also helps maintain their home while they’re abroad. However, do make sure you are prepared for the tax implications. Otherwise, you could be vulnerable to fines or interest payments from the Spanish Tax Authority. To ensure you’re fully compliant, seek the advice of an independent tax adviser. At Ábaco Advisers, we can help you make sure both your Spanish and British tax returns are fully in order – so you can let your home with confidence.