Rental property – Be prepared

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    • #51836

      Following a meeting last week with the Hacienda, some interesting information came out regarding rental property.
      Over the next few years, instead of receiving vast amounts of funds from Europe, Spain will become a net contributor to the EU.
      This needs to be funded, and will be done so in a number of ways, increased taxation is one, but also by reducing the amount of black money that
      is paid during the purchase of property and also that is paid as rental.
      With regard to the collection of revenue due on rental properties the hacienda are implementing the following:

      Increased number of Inspectors

      Monitoring magazines, newspapers and websites that advertise rental properties, checking on ownership and tax ( including IVA ) paid by those owners.

      Liasing with Sevillana and other suppliers, if a property is empty it wont use electricity and water.

      Liasing with local Tourist boards to check on registered property.

      In short, I think that the days of unregistered property, undeclared income and tax avoidance in the rental market are coming to an end.
      So the best advice is, be prepared, get legal, talk to your accountant or direct with the Hacienda.

    • #62322

      Civic minded citizens in all societies pay their Taxes, these societies base their Taxation system on fairness.

      However in the case of Spain this fairness is not extended to non Spaniards who live in Spain and have contibuted handsomely to the Spanish economy

      Spanish Tax law does not allow expenses to be deducted from the rent received. The majority of home owners do not make any money from rental income and barely covers their expenses ( mortgage interest not included)

      In addition as far I am aware the Spanish revenue does not even allow the personal allowances against the rental income.

      If the system is fair the majoity will pay the tax if it becomes due. Let us not forget EU has paid so far in bringing Spain to its current state of development and in the future the gravy train will continue toi be undrerpinned by taxes paid by non residents who are mainly from EU.

    • #62326

      Spanish Tax law does not allow expenses to be deducted from the rent received. The majority of home owners do not make any money from rental income and barely covers their expenses ( mortgage interest not included)

      Many home owners do not declare rental income, thus avoiding paying taxes and IVA. The majority of these people have bought the property as a holiday home, renting out to friends and family to help cover the running costs.
      This is the group of people at whom the hacienda will be taking a closer look.
      On the other hand, there are many companies, and individuals, who own and let out rental property. These people, both Spanish and non Spanish, resident and non-resident, are registered with the proper authorities, declare their earnings from rental, pay their tax and IVA,and do make a profit from their legitimate business.
      Such businesses are able to claim reasonable expenses against tax, as any other legitimate commercial enterprise.
      Here is an extract on deductable expenses:

      Rental Income – Rendimientos del Capital Inmobiliario

      Deemed income for non-residents

      Deemed rental income for urban real estate not rented out or used as a second residence

      2% * Cadastral Value (CV)
      1% if CV revised after 1st Jan 1994

      If CV can not be determined, use 50% of value for the purposes of the Wealth Tax, apply 1.1% to this

      Deductible expenditure (residents only)

      Normal repairs and renewals
      Replacement of central heating, lifts, security doors etc
      3% annual depreciation allowance on higher of cost of property / CV (land not included) *
      All necessary expenditure

      * Any depreciation claimed reduces cost base for calculation of capital gain on subsequent sale

      Allowable expenditure can’t exceed rental income (i.e can’t have negative net rental income in any tax year).

      Possible 40% deduction for irregular rentals.

    • #62343

      People who have set up legitimaste business will be residents and have done so after looking at the business feasibilty/tax planning.

      The fact remains that people who, shall we call them part time renter are non residents and thus are not allowed to offset expanses.

      The forum has covered this subject on number of occassions. If the non resident are generating taxable income than they should also be allowed to offset expenses.

      The Spanish revenue knows that this way they cannot generate much revenue so prefer to extort what ever they can in a manner which is unfair, unjust and unequitable.

    • #63057

      Question:Should (Tax) Law be fair?
      The reality is that laws can be flawed and/or deemed unfair, depending on the perspective. The answer has to be to seek professional legal/tax advice. You can hear many stories from friends, acquaintances, other property ownes, it is normal but dont use this as a basis to arrive at a decision how best to proceed in such matters without seeking professional advice first. One must always repect the legal and fiscal requirements of the country where the income is being made or the location of the asset. The points regarding having a spanish company formed or being resident to receive tax benefits are valid. Likewise the contribution to the spanish tax office from eu residents is valid and it may be possible to offset the tax that is paid outside of one own fiscal domicile to their own tax office, in which case you should have an accountant in your own country advise you.


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