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  • Overseas Investing

    Tax system in Spain for rental property?

    Hi,

    We are thinking about purchasing a property in Sevilla, Spain to rent out. Can anyone advise how taxes on this income would work? I am British and my wife is Spanish and we both live and work in London.

    From this site i understand it would be 19% as non-residents but member of EU (for now at least!) Is that correct, or are there any additional taxes on income earned  letting out the property we would need to pay?

    https://www.expatica.com/es/finance/taxe...em-471614/

    Thanks

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    First thing to remember that you are paying approx 13%-15% in addition to the purchase price. Your tax position depends upon your individual circumstances and I would get it checked out by tax experts in this field. Probably HMRC will give you advice for free or look on their web site. What ever you do make sure its correct otherwise it could become costly getting wrong side of the authorities in both Uk and Spain

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    Where did you hear about 19%?  A quick google tells me it's 24% for non residents but there is a reduced rate of 19% available - not sure how you get it though.  There is a CAB Spain site that is full of good info.  Here is their page on rental income https://www.citizensadvice.org.es/tax-de...roperties/


    The first link I found that mentions the reduced rate - note that you can also be taxed on deemed rental income for an empty property https://www.ptireturns.com/spain/property-tax-return

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    The link I shared states:

    "The general flat income tax rate for non-residents is 24%, or 19% if you are a citizen of an EU/EEA state."

    However from an initial look on HMRC I understand I'd pay tax on overseas income as I would on UK property income, perhaps I misunderstood but now I'm confused. Surely it must be one or the other? 

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    No. You supposedly don't pay tax on the same income twice but it can certainly feel that way sometimes. 

    It depends upon the double taxation convention between the UK and Spain.  I'm in France and all the EU double taxation conventions seem similar but as I live on rental income I noticed a difference in the way it's treated in Spain compared to France.  The main point is that rental income is always taxed by the country in which the property is situated.  Then the difference is on whether the country of residence also taxes it, after the location country has had their bite of the tax cherry (after giving a credit for tax already paid).  I don't pay any French tax at all on UK rental income, for instance (though it does push  my French sourced income up into a higher bracket) but the France/UK treaty is a little ambiguous (using the word 'may' rather than the words 'may only' be subject to tax) so the UK read that as France gets first bite and then they tax it too, with a deduction given for the French tax. 

    Now the way the Spain treaty is written, from what I remember (because I was looking out for it), is that they definitely use this tax credit system both ways.  So the income is taxed by the country the property is in first and then the other country taxes it, giving a credit for tax already paid but only against that income.  So if you would have paid less tax in your country of residence you don't get that back.   So the UK does this for both France (which is wrong) and Spain (which is correct).  Now what I don't know about in Spain is whether they have the equivalent of social charges and if so, how they are considered in that treaty.  The UK don't allow a credit for French social charges (which are often more than the tax!) so you need to check whether Spain has these sorts of charges and how they are treated or you could end up paying a lot  more than you think in taxes and charges.

    I seem to remember it would have been a bad move for me to move to Spain with my UK rental income because I would have paid a lot in Spanish taxes.   You have to look at the allowances given as well as the tax rates - I'm pretty sure that part of the problem was that a good chunk of my UK rental income was covered by the tax free allowance in the UK but not in Spain.  That's not totally relevant to you being resident in the UK but you should get the picture that you need to check both the allowances and rates in both countries and which taxes or charges from Spain the HMRC allow as a credit against the UK tax due on that income.  

    Have a good look around that CAB site - I found it very useful a couple of years ago in deciding whether to move to Spain while I still definitely had freedom of movement.  Note I'm still in France Big Grin  (inheritance taxes in Spain put me off as well as the taxes on rental income, both domestic and foreign).

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    Thanks Debra,

    It does sound quite confusing but i think I'm getting there! THis website was also useful and i think helps clarify things.

    https://www.advoco.es/advice/8-personal-t...spain.html

    "Income from property (i.e. rental income) gets a specific mention in the double tax treaty. Basically it is treated the same as other forms of income, so if you are resident in one country but rent out a property in another then you will probably have to pay tax in both countries but can use the treaty to get relief in your country of residence.

    For example:

    You live in the UK and buy a holiday home in Spain. If you rent it out the HMRC is certainly going to want you to declare the income (and do look out for holiday home renters who don't declare the rent). But you are also liable to Spanish tax even as a non resident of Spain (see this article Taxation of Rental Properties in Spain). You should declare in Spain using modelo 210 (we have a Form 210 tax return service for this purpose) and in the UK but in the UK you can deduct the tax paid in Spain. You will only end up with an additional tax bill if the UK-calculated tax exceeds the tax paid in Spain."

    Interesting point about your UK rental income getting taxed highly if you move to spain..I'll have to consider that in our retirement plans down the line!

    Thanks!

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    If the UK ends up leaving the EU (which I still doubt) then that may make a huge difference that you will need to watch out for if you want to retire to Spain.  At the moment, non residents who live within the EU get a lot of special tax treatment that disappears when the UK becomes a third country as well as residents who become third country  nationals not getting special treatment anymore.  One example is that we don't pay social charges on investment income if we're not under the charge of the French health system.  That's 17.2% extra to pay on French rental income (making it 47.2% altogether for non residents who live in the UK under the recent change we've had in France, with the withholding rate for non residents put up from 20 to 30%) if the UK leaves the EU.  For residents, this rule means that retirees here don't pay social charges on pensions as well as investment income (they pay one of the charges but not all) if they have their healthcare via an S1 from the UK (which those of state pension age get currently). 

    France doesn't charge a higher rate of income tax or capital gains tax to third country nationals anymore but I'm not sure that's true of all other EU countries.  Higher property taxes (land tax or council tax equivalent) may be charged to third country  nationals too.  All this bears checking very carefully.  I quite fancied letting my properties here and moving back to the UK at some point but if the UK leaves the EU I'll be really loath to do that now.  The rise to 30% tax for all non resident rental income was bad enough but to have to pay social charges when I don't benefit from the systems they're charged for wouldn't be good.

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    Hi,

    Be very sure that anything you consider buying in Spain can legally be rented as a holiday rental. Rules vary by Autonomous Community, Local Authority and the Community of Owners themselves (if an apartment for example). You will also need a good Spanish lawyer. Try larrainnesbitt.com. I have no affiliation with them but have heard good things and they are based in Andalusia. There should be no discrimination based on any domicile outside Spain. Either you are fiscal resident in Spain or you are not for tax purposes. Good luck, Seville is a great city.

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    Excellent point.  Both France and Spain have been really tightening up on rules and checking of people doing holiday rentals.  Not just from a tax point of view but a health and safety point of view.  I get the impression Spain is ahead of France on this and they're very strictly checking that people are properly registered to let their homes and that the property itself meets the relevant safety tests.  Similarly to France, it could differ on a departmental or regional level since a lot of the bureaucracy is decentralised and dealt with by each region or department.

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    Thanks Steve! Yes I've got a good Spanish lawyer based in Seville so he will definitely come in handy. Yes love Seville, lived there for 3 years!

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