Taxes on your holiday rental property: what you need to know

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Thanks to platforms like Airbnb and HomeAway, renting a property during the summer holidays has become an attractive alternative to traditional hotels.

As a result, many individuals now rent out their second homes to generate additional income, while others lease their primary residences while they spend their summers elsewhere. 

However, it’s essential not to overlook the tax implications of these actions. This article explores the taxes associated with putting your Spanish property on the holiday rental market.

Can I turn my Spanish property into a holiday rental?

Yes. However, the rental regulations for vacation properties vary by region due to changes in the Urban Leases Act of 2013 and specific vacation rental laws.

Each Autonomous Community (region) in Spain has the authority to establish conditions for offering vacation rental properties. Additionally, local municipalities can influence the regulations governing properties within their jurisdiction.

For example, obtaining a tourist licence and meeting certain minimum requirements are mandatory for renting out your property in Madrid. In Barcelona, a specific licence is necessary for engaging in tourist rentals.

Therefore, before deciding to rent out your property as a holiday rental, it’s crucial to understand the regulations and requirements in your municipality.

Value Added Tax (VAT) on holiday homes

The application of Value Added Tax (VAT) – Impuesto sobre el Valor Añadido (IVA) in Spain – on rentals depends on the specific circumstances of the rental property. There are three common scenarios:

1) Renting through a property management company

If you choose to entrust the management of the rental to a specialist company, they’ll handle the process on your behalf. In this case, you’ll need to include 21% IVA in the transaction.

2) Renting the property directly

If you decide to handle all rental procedures yourself, as is common with rural properties, IVA is not applicable unless you provide additional hospitality services such as meals. 

Similar to hotels, the IVA rules for these services will apply.

3) Renting through online platforms like Airbnb

This option is the most popular. If you rent through platforms like Airbnb, you’ll need to add 21% IVA to the intermediary as a service fee. However, IVA does not apply to the rental unless additional hotel industry services are provided.

It’s important to note that platforms like Airbnb, Wimdu, HomeAway, Niumba, Hometogo, and Rentalia are required to inform the Tax Agency about vacation rentals in Spain. Therefore, ensuring compliance with tax regulations is crucial to avoid penalties.

Reporting income from holiday rentals on your tax return

In Spain, when renting out your property for vacation purposes, you must report the rental income on your annual tax return, in addition to the IVA.

There are two approaches to declaring rental income. One option is treating it as income from a second home. However, this is only recommended in the case of very occasional short-term rentals.

The second is to treat the property as tourist accommodation. If you choose this approach, you must complete specific procedures, such as registering the property as on your Autonomous Community’s tourist accommodation registry and potentially registering for the Economic Activities Tax, if applicable. If taking this route, you will need to issue invoices for each stay, charge the corresponding IVA, and file quarterly IVA returns. 

Additionally, it should be noted that both approaches allow deductions for eligible expenses related to the rental activity, such as property tax, mortgage interest, insurance, utility bills, and more, but the 60% reduction applicable to primary residence rentals does not apply to vacation rentals.

Ready to turn your property into a holiday rental?

If you’re considering renting out your property to holidaymakers, make sure you’ve got all your bases covered.

At CostaLuz Lawyers, we’re experts in compliance with Spanish tax laws. From VAT obligations to reporting rental income accurately, we’ve got you covered.

To maximise your profits, and avoid penalties and additional tax liabilities, get in touch with us now!

Maria Luisa Castro

Director and Founder
María founded CostaLuz Lawyers in 2006 and is the Firm’s Director. María is registered Lawyer number 2745 of the Cadiz Bar Association and is licensed to practice in all areas of law throughout Spain. Working closely with her team, María has developed the firm into one of the most highly regarded and trusted Spanish Law Firms acting for English-speaking clients with legal problems in Spain. We’re here to help. Contact us today for a free, no-obligation, initial legal orientation.
 

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