Are you a UK resident with a Spanish rental property? Natasha Meah Layland, Director of EBF Consulting, provides some tips.
Some of you might have a holiday home that you let out when you are not using it to help pay the bills. Others might have bought an investment property as their ‘pension pot’ and rent out their home full-time. Either way, here are some important things to think about if you are planning to take in paying guests…
Where do I pay the tax on my rental income?
Tax is paid in Spain, irrespective of where you have received the income. Additionally, you will need to include the income in your UK Annual Income Tax Return and offset the tax paid in Spain as a credit.
How is the tax calculated?
Currently, you are able to offset expenses related to the rental income received. Some expenses such as electricity, water, local rates, community charges etc., will be proportioned in accordance with the number of days the property has been rented out.
Other costs directly related to the income received, like agent commission and cleaning are 100% deductible. The profit is then taxed at 19%. If you are receiving the income from a property management agent in Spain who deducts costs related to the management of the property (not just commission) then they should be withholding the tax at source, in which case you do not submit the quarterly return.
Will the tax change with Brexit?
Citizens from non-EU countries (except Norway and Finland) are taxed at 24% on rental income not profit i.e. no expenses are deducted. This will be the same for UK citizens should the UK and Spain not reach an agreement similar to Norway and Finland. The difference in taxation between EU and non-EU citizens has been argued to be discriminative, let’s see if this can be proven in the courts.
How do I pay my tax?
You will need to appoint a fiscal representative in Spain, ensure you use a reputable tax adviser. Each quarter you will be obliged to present the 210 Form, this is presented during the first 20 days of April, July, October and January. Holiday lettings may be subject to the equivalent of VAT depending on the region of Spain the property is located.
Do I need to pay any other taxes?
There is a private use tax to pay on the property for the days it has not been rented out; this is based on the “catastral value” of the property (the value used to calculate local council tax).
Are there any other obligations I have if I holiday let my property?
You will have to register with the local Guardia Civil (civil guard) and inform them of the guests staying in the property; they will need their full names and passport details. Although the registration has to be done in person (you can authorise someone to represent you), the notification of guests details can be completed online. Most property management agencies offer this service. In addition, you should have authorisation from the tourist board; the requirements for this vary depending on the region.
Anything new I should be aware of?
Recently, Spain introduced the 179 Form in combat to reduce fiscal fraud. This form is presented by booking agents who intermediate holiday rentals such as HomeAway.com, Airbnb, TripAdvisor etc. The form reports each booking to the Spanish tax authorities and provides them with details of the property owners, commencement date (of each booking), duration, details of each guest (name and passport/ID number) and the amount of rental paid to the owners. This allows the tax authorities to cross-check in their database and pursue any property owner that has failed to declare their rental income. Be sure to present your returns in Spain!
Is there any difference if I decide to live permanently in Spain and rent out part of my residential house or a second property?
You will need to inform the UK that you are leaving to live in Spain, this will mean you have to report global income and wealth to the Spanish tax authorities (not the UK). Rental income will be declared in your Spanish annual income tax return and NOT presented quarterly. The tax levy on rental income will depend on your other income and your personal allowances permitted in Spain. Note that there is a 60% reduction on long lets. If you are holiday letting then you may be subject to the equivalent of VAT depending on the region and this is presented quarterly.