60% landlord tax break on gross income rental earnings – challenged in Brussels

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By Raymundo Larraín Nesbitt
Lawyer – Abogado
21st of May 2019

Despite the misleading heading, this is actually good news for us all.

Up until now, only Spanish-resident landlords could benefit from a 60% reduction on gross income earnings derived from long-term lets (does not apply to short-term lets or holiday homes). This allowance is only applied to landlords which are (tax) resident in Spain and the property must be the permanent abode of the tenant. Currently, the Spanish Tax Office bars tax advisors from applying this tax break to fellow EU nationals.

However, this is currently being challenged at Brussels on grounds of discriminating fellow EU member state nationals as it infringes one of the main covenants of the founding Treaty of Rome from 1957, freedom of movement, which happens to be at the very core of the fabric on what constitutes the Union.

It is simply amazing how almost 15 years on I am still writing tax articles on grounds of fiscal discrimination towards fellow EU member nationals. Here’s one from June 2005, published in Essential Magazine Marbella, where I am discussing yet another similar fiscal discrimination challenged in Brussels which Spain also lost at the time.

In all likelihood (and in my personal opinion only, so take it with a pinch of salt), in compliance with the ECJ’s landmark ruling from 3rd September 2014, the Kingdom of Spain is bound to lose this court case – and rightfully so!

All this is good and well, but how does it affect me, my pocket?

It means that when Spain foreseeably loses this court case, as is widely expected, and in coherence with previous ECJ rulings, all EU non-resident landlords (albeit resident in the Union i.e. the United Kingdom) will be able to take advantage from this ‘new’ tax allowance for the first time ever. Meaning landlords, whether resident in Spain or in the rest of the EU, will now be in equal footing, benefitting from the same 60% tax break Spanish landlords have already been enjoying for years.

In plain English, after Spain loses at Brussels, all EU landlords on long-term lets will stand to pay significantly less taxes on the rental income they derive from renting out immovable property located in Spain. Providing your tax advisor does actually claim this tax relief, granted. It will not be applied automatically on your tax return…

This new tax change will translate into all EU-based landlords to benefit from a huge discount on their long-term rental income tax bill. Once more, kudos to our Brussels overlords.

Short-term EU-based landlords (read holiday homes) had already been benefitting over the last 4 years from reduced taxation on being allowed to greatly mitigate their tax bills on renting out. On average, our law firm reduces our client’s tax bills by 70%, or more. More on this, in our taxation article: Save 70% on your landlord tax bill – 8th March 2019.

Bottom line, both long and short-term EU landlords alike can both expect a great mitigation on their Spanish tax bills in the near future.

Lower taxation is always good and necessary for the economy. It incentivizes and fosters foreign investments in Spain, chiefly on property purchases with a view to buy-to-let. Which in turn leads to job creation, greater disposable household income, increased wealth and political stability. And our spendthrift politicians get to spend more of our hard-earned taxpayer’s money in whatever it is they spend it on.

Blog post dedicated to M. Jo Declercq.

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, inheritance, conveyancing, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on 952 19 22 88 or by completing our contact form to book an appointment.

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About Raymundo Larraín Nesbitt

After completing his dual law degree in Madrid (ICADE) in 2003 Raymundo went on to work for prestigious Spanish and English law firms in Spain before moving to the UK for several years to work for a British multinational. He is a prolific writer of legal & financial articles in English, with well over 140 articles published and widely used in the Spanish real estate sector. Raymundo now runs his own law practice in Marbella, where he advises local and foreign clients on all legal matters with a focus on conveyancing and non-resident taxation. He is regularly quoted by the international press as a reliable source in his field of expertise.