Renting out a property in Spain as a landlord: laws and taxes

The law regulating long-term rentals in Spain refers to the rental of a property whose purpose is to satisfy the permanent housing needs of the tenant.

Following the latest amendment in March 2019 to the laws on renting out property in Spain, the minimum duration of a rental contract is five years if it is a lease between individuals, or seven years if the lessor is a legal entity. After this period, the rental contract can be extended for a further three years if neither of the parties waives the extension.

Once this period has passed, tenants who do not wish to continue with the contract only have to give the landlord one month’s notice before the termination date. The landlord must give 4 months’ notice. If, for any reason, the tenant wishes to terminate their lease, they may withdraw from a rental contract after at least six months have passed on the initial contract, provided that the landlord is notified at least thirty days in advance. On the other hand, the lessor may not repossess the dwelling until the first year of the contract has elapsed, and provided that the lessor informs the lessee that they need the rented dwelling to use it as a permanent dwelling for themselves or their family members.

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As a resident of Spain, you must be taxed in Spain on your worldwide income. Additionally, in accordance with the double taxation agreements signed by Spain, income from assets located abroad will be taxed jointly by Spain and the country of said assets.

In the case of rental incomes coming from the UK, article 6 of the DTA (double taxation agreement) signed between both countries will apply, in which Spanish tax residents are obliged to declare and pay tax on their rental income in the UK and in Spain; to avoid double taxation, the tax paid in England will be deducted in the Spanish resident’s income tax return in accordance with the agreement and domestic regulations.

Under the Spanish tax law, long-term rentals of properties both in Spain and abroad are eligible for a tax allowance of 60% of the net rental income, and a mortgage tax allowance can also be claimed.

It is important to note that income from holiday rentals (short-term) is not eligible for this 60% tax allowance. However, the following are generally some of the deductible expenses; community fees, council tax, insurance, water, electricity, mortgage interest, estate agent’s fees, cleaning and laundry, maintenance, and repair costs.

• Non-resident Europeans: Despite living abroad, any Europeans renting out a property in Spain have to pay foreign tax, known as IRNR (Impuesto sobre la Renta de No Residentes). In accordance with 24.6 LIRNR (Real Decreto Legislativo 5/2004, 5th of March), property owners need to pay the net rent – that is, the income minus expenses. These expenses can only be deducted if you can provide a certificate of fiscal residence in your home country. Some of these expenses are the following; property tax (IBI), home insurance, value depreciation of the house, community expenses, legal defense (lawyer), mortgage interests, maintenance and publicity expenses. You can only deduct the proportional part of the expenses corresponding to the number of days the property has been rented for.
• Non-residents outside of EU: In accordance with 24.1 LIRNR, citizens who are residents in non-EU countries or EEA (Norway, Iceland and Liechtenstein) who obtain rental income in Spain (this particular tax rule does not distinguish between long-term and short-term rentals) must be taxed on their gross income obtained by rentals – that is, you cannot deduct any expenses. Non-EU, non-residents must pay full tax – no deductions, where neither allowances possible.

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Deductions on rental expenses are not allowed for citizens residing outside the EU or EEA (Norway, Iceland and Liechtenstein). From 01-01-2021, the United Kingdom is considered a non-member country and as an important new thing to be taken into account, non-resident British citizens in Spain that obtain incomes from renting their homes in Spanish territory will have to pay a tax of 24%. Furthermore, as non-European community citizens, they will also not be able to deduct their rental expenses, and will therefore pay taxes for the gross income.

As a result of this tax discrimination, many taxpayers affected have filed multiples complaints with Brussels over this increased taxation rate. Below shows a table comparing the difference in taxation for EU citizens and non-EU citizens: A UK citizen owns a property in Malaga which he rents for 1,250 euros per month. The expenses incurred during the year (electricity, water, repairs, community fees, IBI, etc.) are 2,800 euros.