Rental Income - Allowable Expenses

I am a Non Resident who rents my property for short term holiday lets

I understand that there a certain expenses that I can claim against the income received, the sort of expenses I have in mind are Utility Bills, Community Charges, perhaps Mortgage Interest, relative to the period of the holiday lets

I would appreciate any guidance on this subject or a least a pointer as to where I can find a definitive list/rules

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From 1 January 2011, a reduction of 60% is available against net rental income for residents of Spain before tax is payable, and includes any lettings income from outside Spain but not short-term holiday lets.

The net rental income is the amount of rent due after deducting usual day-to-day running costs for the period in question, including local municipal taxes such as IBI (Impuesto sobre Bienes Inmuebles), repairs and maintenance, managing agents' fees and commissions, interest on loans for purchase or improvement, and depreciation of 3% per year of the cost of the property (excluding the land value). Spanish mortgage interest is allowable provided the mortgage was used to acquire or improve the let property. The tenant is generally required to retain 15% of the rents on account of tax and pay this over to the authorities.

A non-resident is taxed on rental income from Spanish property at the rate of 24.75% on gross income without any deductions for expenses or interest costs.    Again, the tenant is required to retain 24.75% of the rent and pay it to the tax authority. In the case of short-term holiday lets the agent or landlord should do this.

Where property is owned in Spain but is not the main home, a purely notional or theoretical rental income is deemed to arise for periods where the property is not actually let, based (normally) on 2% of the official value (valor catastral) of the property as shown in the IBI notice for the year (whether being a Spanish resident or not). Where such a property is empty for part of the year and rented for part of the year, calculate the notional income for the part of the year the property is empty.

 

 

This message was last edited by elaineG on 07/10/2013.

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From 1 January 2011, a reduction of 60% is available against net rental income for residents of Spain before tax is payable, and includes any lettings income from outside Spain but not short-term holiday lets.

This only applies to residents

 

The net rental income is the amount of rent due after deducting usual day-to-day running costs for the period in question, including local municipal taxes such as IBI (Impuesto sobre Bienes Inmuebles), repairs and maintenance, managing agents' fees and commissions, interest on loans for purchase or improvement, and depreciation of 3% per year of the cost of the property (excluding the land value). Spanish mortgage interest is allowable provided the mortgage was used to acquire or improve the let property. The tenant is generally required to retain 15% of the rents on account of tax and pay this over to the authorities.

These are the items that EU residents can deduct, BUT, they have to prove that they were incurred in generating the rental income in Spain. This what the law actually says

 "Deductible expenses (7): Expenses for each income category listed in Act 35/2006 on Personal Income Tax may be deducted from income obtained since 1 January 2010, provided the taxpayer accredits that these are directly linked to income obtained in Spain, and can accredit a direct and indissoluble link to the activity pursued in Spain" Now, I have seen this interpreted to mean that the deuctions can only relate to the period of the rental. In other words, if you rent  out for 3 months, then an only 1/4 of an annual cost can be claimed.

A non-resident is taxed on rental income from Spanish property at the rate of 24.75% on gross income without any deductions for expenses or interest costs.    Again, the tenant is required to retain 24.75% of the rent and pay it to the tax authority. In the case of short-term holiday lets the agent or landlord should do this.

This is true for non-residents, but for EU non-residents, the EU forced Spain to allow them the allowances (i.e deductions) that they allow residents, otherwise it is discrimination. No chnage there then.

 

Where property is owned in Spain but is not the main home, a purely notional or theoretical rental income is deemed to arise for periods where the property is not actually let, based (normally) on 2% of the official value (valor catastral) of the property as shown in the IBI notice for the year (whether being a Spanish resident or not). Where such a property is empty for part of the year and rented for part of the year, calculate the notional income for the part of the year the property is empty

 

All non-residents have to  pay this (proportionately) when their property is not rented out 

 

You have to submit a return at least quarterly. Fortunately there is a lot of information on the Hacienda website about this in English, tigwther with the online form, which you can find here

 

 

This message was last edited by kathyslad on 07/10/2013.

This message was last edited by kathyslad on 07/10/2013.

This message was last edited by kathyslad on 07/10/2013.

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http://www.ptireturns.com/en/tax_info/es.php

 

http://www.agenciatributaria.es/AEAT.internet/Inicio_en_GB/English/Non_residents/Non_resident_Income_Tax/Non_resident_Income_Tax/Important_issues/Taxation_on_Urban_Buildings_Owned_by_Non_resident_Individuals.shtml

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Hello

We have been renting out our apartment in Spain for 6yrs and also rent out residential properties in the UK. You will need to do a self assessment for HMRC every year. If you go into their site and look under self assessment you can click into notes on each section which will tell you what you can claim for. Basically you can claim for all costs like you have said but you have to divide the full amount by the times you and your family are there. You can also claim for a few flights a year as you have to keep a check on your property and if you did not claim when you furnished your property when you bought it you can claim for anything that needs to be replaced due to damage or bad wear and tear. Also there is no double taxation so any tax you pay through your 210 in Spain you can offset in the UK

Hope that helps

Jan

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Alexa, I will let other be more precise (Kathyslad maybe)  but I am just about 100% certain you must pay your tax in Spain on income earned in Spain, including rental income.

 That the HMRC will let you pay them I do not think relieves you of your obligation here.

 

In addition to the above.

 

I just came across this (in English) when looking for something else.  It seems to confirm what I posted above.

It specifically mentions rental income.

http://www.agenciatributaria.es/AEAT/Contenidos_Comunes/No_residentes/Tributacion_de_no_residentes/Folletos_divulgativos/irnringles.pdf     
 

This message was last edited by elaineG on 08/10/2013.

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Hello

It is not a case of HMRC letting you pay in in the UK it is a legal obligation if you are resident in the UK. Yes you do pay tax in Spain through your 210 form ( we have ours done by a professional company to make sure it is correct) but we do not have to tell them how much we have made through rentals. You do have to declare it in the Uk but as I said they will take off any tax you have paid in Spain from what you have to pay. HMRC actually has a foreign property section on their self assesment form although you can put it through as a separate section on the UK property if your income is below a certain amount.

Jan

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If you receive rental income in Spain, then you MUST declare it in Spain through Form 210, at least quarterly. As I previously posted, you can deduct expenses, incurred in generating the income. As Alexa says, if you are a UK resident, then you also have to declare it in the UK, but you can offset any tax paid in Spain. It works the other way for Spanish residents receiving rental income in the UK. Its covered by Article 6 of the Double Taxation Agreement.

I'm not quite sure what Alexa means by "but we do not have to tell them how much we have made through rentals.". You have to declare the amount of rent you receive, less any expenses, which, unless i am being a bit dim, is "how much you have made through rentals"

This message was last edited by Kathyslad on 08/10/2013.

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The trick would seem to be to generate expenses such that they cancel out the generated income.

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You'ld just be investigated if you tried that, they're not stupid, either in Spain or the UK. Its not worth putting your head over the parapet for that.

In Spain, if they investigate you, they ask for documentary evidence, which if not in Castellano, has to be officially translated ( by an approved translator, not Mr Google), and you have 10 days to provide it, including Saturdays, even though they're closed. Plus, they may dig a bit deeper if they think you're trying to pull a fast one.
In addition, they have 4 years to check it. If you looked at your Hacienda record, you would find any returns you made in 2009, still showing as processing. My son has just received a demand for €600 plus interest @ 5%, in respect of a capital loss on shares he claimed in 2009, which they say he wasn't entitled to claim.

This message was last edited by Kathyslad on 08/10/2013.

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Thanks for the feed back, the information provided by both ElaineG and Kathysclad and the links to the agencia tributaria are particularlyhelpful.

I was suprised to see English translations available which are also extremely helpful in such a potentially difficult subject to navigate

I navigated my way to the section

Forms 210 - Instructions for filing your Self-Assessment Form, scroll down to Item 3 reffering to taxable expenses (7) and that expenses can be deducted.

Is there such a list of expenses that can be allowed as deductible expenses, if so where can I find it?

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The expenses you can deduct are pretty similar to those in the UK. This is what is in the Law on Income Tax (translated)

"a) All necessary expenses for the production of income. Expenses shall be required to obtain yields, among others, the following:
1. º The interests of foreign capital invested in the acquisition or improvement of property, rights or use and enjoyment faculty from which the returns, and other financing costs, and the costs of repair and maintenance of the property. The total amount of deduction for these expenses may not exceed, for each asset or right, the amount of income earned integrity. The excess may be deducted in the next four years according to what is stated in this issue 1. º
Two. ° The state taxes and surcharges and fees and state surcharges, whatever their denomination, provided that impact on yields computed or good or right producer and not have those punitive nature.
Three. º doubtful balances under the conditions established by regulation.
April. º The amounts accrued by third parties as a result of personal services.
This message was last edited by Kathyslad on 10/10/2013.

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I hope you're not paying for that advice. Although you can deduct expenses from income, you can only deduct those that been incurred in the rental. So for example, if you rent out for 4 weeks, you cannot deduct the annual cost of suma/community etc, you can only deduct 4/52 of the amount. You can of course deduct any tax paid from any tax due when you declare the income in the UK, upto the amount of tax due. If you do rent it out for 4 weeks, then you can adjust the deemed income tax on your property. Unfortunately, this tax is not deductible from tax due in the UK
This message was last edited by Kathyslad on 06/11/2013.

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I don't think it was clear from that snippet that I put on that I do as HMRC told me and divide my total costs for the year by weeks and claim for the amount of weeks we rent out for. But this has nothing to do with the point I was making about the advice I got as that was to let people know that if their income from rentals is lower than their costs they do not have to declare it

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In addition to utilities, property management, maintenance etc can I also claim for bed linen/towels or larger items such as TV or aircon (proportionately for actual rental period)? The latter would be for the year of purchase only. Is it definite that it's not necessary to make a return if no profit from rentals i.e. just the annual non-resident tax?

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Yes I use a registered company to do my tax return and you only have to declare it in Spain if you make a profit, but you do have to declare it in the UK so you have to do a self assessment there. You have 2 options for furnishing etc claims, you can either claim all your original costs when you 1st purchased the property but if you did not claim at that time then you can claim for any replacements you have to make. I had this information from the UK tax office, it is instead of the system that they have if you rented a furnished property in the UK where you can claim 10% a year reduction for wear and tear. So yes you can claim for any bedding bought for guest use and also any necessary electrical items, kitchen equipment, furniture etc that you have to replace if they break. If your costs are more than your income then the loss can be carried forward so if in future years you make a profit it will be offset.

Hope this helps

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Thanks Alexa, I appreciate your help and the useful information. As this is my first year of rental, I am pleased?? to say that I haven't made a profit so only need to do the one annual return which makes it simpler.

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Hi

Glad to be of help but just to make sure you realise you will still have to do a 210 form in Spain even though you don't have to declare any income from rentals.

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Alexa, yes I realise that, thanks again

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