With the summer season in full swing, the Agencia Tributaria (Spain's tax authority) is launching a campaign to cut down on illegal property rentals. We asked Raquel Perez from Perez Legal Group to tell us more....
At worst, these illegal rentals involve agencies that let properties on their books without informing the owners and then pocket the income, meaning that both the rightful recipient of the rental money and the tax authority are circumvented.
However, these new measures are also aimed at bringing to book the increasing number of second homeowners who are renting their properties out and failing to declare their earnings. Newly released figures estimate that, of the 65,000 holiday homes rented every year in the Málaga province alone, 75% are not declared, meaning a total loss to the taxman of a breathtaking €104.8 million.
In order to recoup this money, the Agencia Tributaria has enlisted the help of the electricity companies; armed with proof of electricity consumption during periods when the offending apartments, townhouses and villas are allegedly empty, the tax authorities will be able to pursue the offending landlords.
Since so many of these holiday lets are owned by foreigners, it has been claimed that much of the problem can be attributed to ignorance. One of the Costa del Sol's English language newspapers, the Euro Weekly News, quotes an unnamed real estate agent: “Although there is no excuse for people not declaring holiday home income, it can be very difficult for foreigners to find out when, where and how one is supposed to go about things. There is so much red tape involved it is often hard to know where to go for proper advice.”
The good news is that it is not at all complicated to place your rental agreements on a completely legal footing:
• Firstly, for full security, your rental contract should be registered with the housing department. This means that you will have full legal protection in the event of any court case about your rental that could arise. Only registered contracts, where the landlord is completely legal in his operations and declares the rental income for tax purposes, have the full protection of the law, although in reality it is often the case that many landlords don’t do this and the rental contract is valid in Court.
• Secondly, if you hire a real estate agency or management company to handle your letting, they must add 18% of VAT to the rent, which must be paid to the tax agency. These companies will normally charge around a 15% commission for their services.
• You must declare your rental income and set aside 24% of the rent as a withholding tax payable to the Spanish government every month or if you apply, every quarter.
• You should know also that you must declare this income to the UK or German tax authorities – wherever you are resident. The double taxation agreement between the two countries means that you can claim back from Spain what you have paid in the UK, so you are not taxed twice but you must declare in both countries.
• If you are a tax resident in Spain, you should add your rental income to your other income when you make your annual Spanish income tax declaration. If you register your property as a tourist letting operation, you can put down the maintenance expenses of your property as a business expense and deduct this from your tax.
Adhere to these five, very simple rules and you can enjoy the additional income that accrues from the rental of your Spanish property, secure in the knowledge that your will not receive any unwelcome communications from the tax office!
Thanks again to Raquel Perez from Perez Legal Group for clarifying this situation.