Rental yields climbed steadily by two digits (14.5%) Year On Year for a third consecutive year. Source: Idealista.
Spain has broken its tourist record for its sixth year in a row! It has consolidated its hospitality status as the world’s second tourist hotspot, attracting almost 83 million visitors in 2018. Sources: BBC, El País and SPI.
Adding to all this good news, following new regulation, all non-resident EU/EEA property owners, who lease property in Spain, are entitled to deduct from their tax bill all property-related expenses. Iceland, Liechtenstein and Norway tax residents may also benefit from these generous tax deductions. Switzerland is excluded.
That is quite a lot of money you can offset every tax quarter, greatly mitigating your landlord tax bill on renting out. This new tax change translates into average tax savings of 70%, or more, for landlords. If you are not EU-resident, you cannot benefit from it.
This hinges on you receiving from your suppliers a VAT invoice. It must meet the following requirements.
Not submitting quarterly tax returns in Spain on your rental income is no longer an option, following new draconian tax laws that have turned all holiday platforms, and other intermediaries, into tax office whistleblowers retroactively as from the 1st of January 2018. All your rental income is now being reported to the Spanish taxman, unbeknownst to you. Fines for non-compliance are very steep. More on this here: Property portals and rental platforms to pass on landlord details to the Spanish Tax Authorities. Are you prepared? AirBnb, for example, explains this new tax ‘sharing’ data policy with the Spanish Tax Office on its website.
Landlord tax relief
You may claim as tax relief all the following property-related expenses:
- Interests arising from a loan to buy the property (i.e. mortgage loan).
- Local taxes and administrative charges and surcharges that impact on the rental income or else on the property itself (i.e. IBI tax, SUMA tax, refuse charge).
- Expenses arising from formalising rental contracts such as lets or sublets (i.e. Notary and/or Land Registry fees); legal defence (i.e. hiring a lawyer for tenant eviction purposes).
- Maintenance costs may be offset; refurbishment expenses (improvements) are excluded (however, you may offset them on selling on the property).
- Community of owners’ fees: these receipts have no VAT, by law.
- Home insurance premiums: fire, theft, civil liability etc.
- Property repairs: plumbing, roof retiling, painting, pool pump etc.
- Utility invoices: electricity, water, gas, internet, and landline.
- Cleaning: cash payments are not tax-deductible, you need a VAT invoice.
- Concierge, gardening, alarm & security services (i.e. gated communities).
- Lawyer’s fees: are 100% tax-deductible! To calculate and submit you quarterly tax returns.
- Property management fees: to manage your rentals.
- Advertising expenses: online/offline.
- Marketing expenses.
- Home depreciation and amortization. The calculation is 3% on the highest value of the following two: sales price or cadastral value; the value of the land is excluded.
Legal requirements to benefit from tax relief
- You are tax resident in the Union or EEA (your nationality is irrelevant).
- The expenses you claim are in direct relation towards the upkeep of the property i.e. claiming travelling expenses would be excluded.
- You have VAT invoices to back up your tax relief claim