Spain has traditionally been a country with a low percentage of tenants, but over the last few years, the number of people who prefer to rent rather than buy has risen considerably. This increase along with fiscal incentives for landlords makes buy-to-let an attractive option. If you’re considering letting your home, read this guide to taxes on rental properties in Spain.
In it, we look at how rental income is taxed, deductible expenses for both long and short-term rental properties and the deductions you can apply to the taxable amount.
To ensure you comply with all your tax obligations in Spain, use a professional to represent you. Find out more about tax representation.
What is rental income?
For tax purposes, the Spanish tax authorities consider any money you receive from letting a property as part of your taxable income. As a result, you must declare this income annually and are liable for tax on it.
However, you don’t pay tax on the full amount; first, you deduct eligible expenses and then, if applicable, apply further deductions.
What happens if you live off rental income?
If your livelihood comes from rental income, it is considered property capital income and a different tax regime applies. Note that you must fulfil a series of conditions for this regime such as have a full-time employment contract for the management of the rental properties.
What about IVA?
There are no IVA (VAT) taxes on rental properties in Spain if the tenant uses them exclusively as a home. The same exemption applies to the furniture, fittings, garage and any annexes.
Note, however, that the moment the property has a mixed-use – for example, a home and lawyer’s office – IVA is applicable.
Read the Spanish tax authorities FAQs on rental properties in Spain.
What about IVA on holiday lets in Spain?
If you have a holiday let in Spain, you are not generally liable for IVA unless you offer services and charge holidaymakers for them. Examples of these include cleaning and laundry. You must apply IVA to the commission charged by booking platforms, e.g. Airbnb, for letting your property.
What are deductible expenses?
You’ll be pleased to hear that the list of deductible expenses runs long, although there are certain exceptions (see the next question below). Expenses that you can deduct from your rental income include:
- Mortgage interest on loans for the purchase or refurbishment of the property.
- Costs associated with the purchase of the property, for example, transfer tax and legal fees.
- Non-national taxes, e.g. local council rates (IBI).
- Upkeep and repair costs.
- Community fees.
- Insurance policy payments.
- Utility fees, i.e. gas, water and electricity costs if you pay them, not the tenant.
- Marketing costs if you promote your property on letting platforms.
What can’t I include as an expense?
The Spanish tax authorities don’t allow you to include the costs associated with upgrades or improvements to a property. You also cannot claim for expenses involved in an extension, e.g. adding another room or a swimming pool.
What is the maximum amount I can claim as expenses?
The maximum deductible is no higher than your total income. So, if, for example, your rental income is €12,000 for the year, you cannot claim more than €12,000 in expenses.
However, if your expenses are higher, you may deduct the excess amount over the next four years providing that the amount does not exceed your total income.
What happens if I only let my property for part of the year?
If your property isn’t rented for the entire year, you apply the proportional amount to your expenses. For example, if you let it for six months, you divide your expenses by 50%.
Can anyone deduct expenses for rental properties in Spain?
The above deductions only apply if you’re a Spanish resident or EEA national. If you’re a non-EEA citizen, you cannot take advantage of any deductions and therefore pay tax on the full amount.
Are there any deductions for taxes on long-term rental properties in Spain?
Yes, there are generous incentives for this type of rental. If the tenant is living in your property as their permanent home, you may deduct 60% from your taxable amount (income minus deductible expenses). However, this deduction only applies to long-term rentals for properties used as homes, not holiday accommodation.
What are the tax rates on rental income in Spain?
Spain applies the same taxes to rental income as the regular income you earn from employment. The rates vary depending on your residence status, as follows:
Residents in Spain – tax rates range from 19% to 47%.
EEA non-residents in Spain – a flat rate of 19% is applied to your rental income.
Non-EEA non-residents in Spain – if you are not an EEA citizen, you’re liable for tax at a flat rate of 24% on your rental income.
How can I get more information?
As with all fiscal matters, taxes on rental properties in Spain are complicated. To save time and stress as well as avoid potential problems with the Spanish tax authorities, get professional help from the experts. Our team of tax advisors will be only too pleased to help – just get in touch for a free consultation.