'New' tax on income from property.

Hi

A golfing friend told me that holiday home owners were going to get 'stuffed because of Brexit' by a new tax.

Turns out there is something in the Express, but of course you have to log in to find out.

The only thing I could find elsewhere was:

https://londonlovesproperty.com/brexit-tax-hammer-blow-for-spanish-holiday-home-owners/

Cheers

Tteedd

Hello Tteedd

Do you have a link to a Spanish Government website that states this?

No Kav

Only the link to London Property I gave.

Don't rent my place out so not really interested for myself but something in the back of my mind tells me it is old news being dressed up for Brexit anyway.

I'v copied and pasted part of the story from the express.  Note the "expert" states "could"

And this could be the case according to a leading tax advisory firm.

Partner at leading tax advisory firm Blick Rothenberg, Robert Pullen explained that from January 1, UK owners with property in Spain could suffer bigger tax rate on income.

He said: “From January 1, 2021, UK-based owners of Spanish real estate will suffer a 24 percent tax rate on income, after the previous 19 percent tax rate expired when the transition period ended on December 31.

“This is a swingeing increase of over a quarter.”

Robert Pullen could be correct with all his ‘’could’’. It would be interesting to know if the tax rate of 24% started on 1^st January 2021 why the Spanish Government is keeping it a secret.

Perhaps some of the UK non residents only pay annual UK non resident tax making 24% of nothing = nothing.

Nothing new here. What's the "story"? There is no "secret". Income tax (including imputed income on property that is not rented out) for EU citizens in Spain is 19%, for non-EU citizens it's 24%. Obviously, every British non-resident Spanish property owner who voted for Brexit knew this in 2016, because they "knew what they voted for".

Just an informative message to "TTEEDD". You state that this increase is no interest to you. I am afraid it is if you are a non resident property owner. Whether or not you actually rent out your property you still have to pay  the "Non-Resident Tax (Modelo 210). If you haven't been paying this tax on your property, you will be fined for the previous 4 years missed payments plus a massive bulk sum.

As I said, "Income tax (including imputed income on property that is not rented out)".

For most people, the extra 5% probably won't amount to much in real terms, and for those who voted to become third country citizens, it will be a small price to pay for the precious "sovrinty" they feel they've won anyway.

Mmmm P W. Don't think that a few Euros amounts to 'Getting stuffed' or a 'hammer blow'. As I said, not really interested.

It's the Electricity and Water companies that are stuffing me.

However I suppose someone looking for the income to pay a mortgage, who has just lost a years income may think a little differently about 5% more tax, plus not being able to claim allowances, on a summers rental gross.

Correct.  

British nationals will be liable for a higher rate of non-resident income tax after Brexit. Instead of the 19% tax levied on income earned by non-resident EEA nationals, British nationals will have to pay 24%.

You are liable for non-resident income tax in Spain on income from activities such as property (e.g. holiday rentals) and employment.

https://costaluzlawyers.es/blog/what-british-owners-of-spanish-property-need-to-know-about-brexit/

https://costaluzlawyers.es/blog/brexit-changes-non-resident-tax-rates-in-spain-for-british-nationals/

Ths is nothing new, I was told about it 2 or 3 years ago.

I do have some questions I would like a straight answer to, please correct me if i'm wrong.

If you are a non-resident owner of a property in Spain you must pay:

1) Local Council Tax 'IBI'

plus

2) Income tax  either:

a) Imputed Income Tax based on the value of your property and paid on a yearly basis. The Spanish Tax system is based on calendar years.

or

b) Rental Tax If you rent out your property for some or all of the year, collected quarterly on the 20th April, 20th July, 20th October and 20th January.

As the UK is no longer in the EU the rate is 24% based on the gross income of the property.  Nobody seems to be able to provide a clear explanation of what gross income is. 

- no expenses can be deducted e.g. Mortgage, insurance, IBI, Community fees, from this amount. I accept that.

- What about utility fees for the property whilst it is let out to a tenant?

    - If it is a long term let then a tenant can reasonably be expected to take over the utility accounts. 

    - Short Term lets are more difficult but it's not impossible to set out a final invoice showing the utility costs as part of the total charge to the renter.

- Does the Gross Income mean the rent as advertised on a web site? Does it include the fees paid by a renter to the website or agent when a booking is made? Checking my Tripadvisor ad they charge a renter £600 more than my rate for a month.

- What is the Spanish Government attitude to taxing people for things that tax has already been paid for, i.e. utilities ???? 

Hello MikeandHelen

Perhaps you should consider asking the Spanish tax authorities.

https://www.agenciatributaria.gob.es/AEAT.sede/administraciones/03099.shtml

Code: 03099

Obispo Rocamora Street, 49.

03300 Orihuela

Telephone: 96 530 59 40

Fax: 96 674 10 11

This increase in taxation is not "new".  That difference between EU member nationals and third country nationals has been in existence for many years.

Actually what happened (way back) is that the Taxation rules established a higher taxation for all foreigners than for Spanish nationals.  These rules were challenged before the EU Courts on the basis that they established a discrimation between other EU nationals and Spanish nationals, contrary to EU laws.  The Court ruled against the Spanish Tax Law and Spain changed the rules so that all EU nationals were subject to the same rules as Spanish nationals.  However, they kept the higher tax rules for nationals of non EU countries.

The UK became a non-EU country in 2021 and therefore UK nationals are no longer covered under the non-discrimation rules of the EU.

On a long term let, if you get the tenant to pay the urbanisation fees and then reduce the rent accordingly, can you lagitamately declare a lower rent received? 

Reeds,

As i see it there are things that can be legitimately put into the name of a perosn renting the property mainly Utilities but you are right to consider urbanisation fees, community fees, if the person recieving the money is happy to re-contract with the person renting the property.

The thing that is difficult is defining what the 'Gross' income is which is. This may be as simple as the amount of money transferred to you from the renter or agency handling the rental agreement.

But of course with a short term agreement, the Utilities are usually payed by the property owner and therefore could be part of the gross and subject to a 24% tax rate.

I await an answer. 

I'm not sure you will ever get a definitive answer. Certainly not from the tax authorities, who in my experience are either ignorant or unhelpful, or both. At the end of the day, your tax declaration is self assessment, so it's up to you what you think you can realistically get away with. The rules seem quite clear, however: no deductions for expenses. Personally, I don't see any difference between IBI and community fees, insurance or utilities. To offset any of these expenses against profits, you would basically have to declare a commercial operation rather than a private rental. On the other hand, I would only expect you to declare the actual rent you receive, not the amount paid by the tenant to a commercial agent or website.

Of course, with a short term let, utilities etc. are paid normally by the owner - but you are also receiving more rent than on a long term agreement. Swings and roundabouts!

I am looking to buy another place in Spain,I am English have a U.K. passport. But I can qualify for a Irish passport and looking to get one ASAP, My question is if I do get another property should I do it with a Irish passport, this way would I qualify for less tax to be paid , Where if I use a U.K. passport I will pay the higher rate . Does this sound possible.  ? 

Xx

MikeandHelen,

I'm unsure you'll receive a definitive answer.  Personally being a very honest fellow I would declare the net amount actually received from the agent (ie without their fee, deductions, bank charges etc) as gross receipts.

The net receipts figure being that after deduction of all other expenses.

Newworld 

I amended my green certificate registration in 2010 when I got my first Irish passport.

That has meant I am Irish with the rights that go with that.  There is no requirement to show anywhere that I have dual nationality.

In your case I would apply to modify/ replace your NIE certificate to show you are Irish. As you say, being Irish, you will then retain the rights you had prior to Brexit.

I post this for information:-

It's from Spence Clarke accountants.  It was in response to a question "my son allows a friend to live rent free in his apartment.  The friend pays the utility charges.  Could those payments be seen by hacienda as income and therefore taxable ?'

Reply

"Hacienda could not claim this if there is an agreement that explains clearly that there is no rent and the tenant is using the property free of charge for security and maintenance purposes subject to the tenant discharging utility and other costs.

The ‘all costs included’ tenancy agreement is perfectly sensible and gets around most of the disadvantages of 3^rdcountry residents. We used to use this many years ago for clients when all non residents had to pay tax on gross rent. The EU resident costs deduction is actually quite recent and forced on Spain by the EU.

The biggest problem is trusting the tenant that then for many mortgage interest which cannot be treated in this manner. You have to trust implicitly the tenant as non payment of community fees, insurance,  water, IBI, basura is not easy to control in normal tenancy circumstances, probably the great majority of cases."

This message was last edited by johnzx on 11/03/2021.