Paying rental income tax

Fiscal and legal advice from Webster Asesores

Dear Sirs,

We have a holiday home in Spain, and we have always been resident in the UK for tax purposes.

During the period that we don’t use our holiday home, we rent it to tourists. Any income we receive we declare and pay tax in the UK. We have been doing this for a number of years.

Last week someone mentioned to us that we should be paying this rental income tax in Spain. We doubt this, since we are resident in the UK, so we should be paying our tax there and not in Spain.

Can you confirm that we have been doing the right thing?

Answer

We are asked this question more often that you would think. I am afraid that you haven’t been doing the right thing, the simple reason is that because your rental income originates in Spain, you should be paying this tax in Spain.

Because you are a tax resident in the UK, you will have to declare any wordwide income you receive, including the Spanish rental income, but because you have already paid tax on the Spanish income, you will be able to deduct this tax, to avoid double taxation.

Your Spanish rental income has to be declared every quarter. All necessary expenses can be deducted, providing you have receipts for these expenses. All necessary expenses are those considered necessary to obtain the rental income.

For the period that you are not renting your property, you should also be declaring what is considered to be a nonresident income tax. This tax is for second homes, and is based on the rateable value ( valor catastral) of the property.

Most nonresident property owners appoint a professional fiscal representative to handle their tax matters in Spain and these can be quite complex, and if not done correctly, can be an expensive experience.

By appointing a reputable fiscal representative, you can then rest assured that your tax affairs are in order in Spain and that you won’t have to face unpleasant circumstances in the future.

A few people who sell their property in Spain and think that any tax responsibilities are over, are then surprised to learn that they have outstanding tax payments to make. Most times, these payments include a surcharge for late filing, plus, sometimes, a fine. At the end of the day, it is cheaper to pay someone to do it property.

number of cases come about when a nonresident vendor claims the withholding tax back, as the capital gains tax is lower than what has been withheld. Before that tax office makes the refund, they check to see if the tax payer is up to date with all their payments, and if they aren’t, they don’t make the refund and demand that all past taxes are paid, plus interest and the fine.

Only once all payments have been duly made, do the tax office process the refund of the difference.

Please send us your queries either by email, or letter indicating that you wish your letter and reply to be published in the Costa Blanca News. You may either send these directly to our offices or to the Costa Blanca News.

This column is intended for informative purposes only and we strongly advise any readers to seek professional advice prior to taking any action.