Spanish Tax Reforms Affecting Rental Income


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The Spanish government has proposed fiscal reforms which may affect the rental market.

The Spanish government has proposed fiscal reforms which may affect the rental market.

However, it should be noted that these are currently being debated by parliament, and so they may change before being approved or may not actually pass into law at all.

 The proposals are that, with effect from 1st January 2015:

  • The tax reduction which was previously available for purchasing a new build
  • will be removed.
  • The VAT rate on new builds will be raised from 4% to 10%.
  • The tax exemption available to landlords will be reduced. In cases where the tenant is aged over 30, the exemption will be reduced from 60% to 50%, and where the tenant is aged under 30, the exemption will be reduced from 100% to 50%. However, this proposal has not made it into the draft laws to be placed before parliament.
  • Inflation relief for properties purchased before 1994 will be eliminated.

There were rumours that the main home, second home and others would be taxed on the basis that they were deemed to be turning over rental income even if they were not. It seems, however, that this measure will not be put into place by the government after all.

It was proposed in the Spanish tax law reform that the main home exemption from capital gains tax will be withdrawn, but the draft law based on this does not include this measure.

There is however an interesting new proposal in the reform to be laid before Parliament that all taxpayers over the age of 65 will not be liable to capital gains tax on any assets, provided that they use the proceeds to purchase an annuity to supplement pension income.

Who is affected?

Anyone who is either a landlord or considering selling a Spanish property which was purchased before 1994.

The potential changes affect both the tax paid on rental income and the capital gains tax due on properties which were purchased before 1994 if sold after 1st January 2015.

If you are resident in Spain and considering selling UK property which you have owned for many years, you have a short window of opportunity to save tax.

You could take advantage of the current lack of UK taxation for non-UK residents (this changes from April 2015), plus the availability of the Spanish reliefs for length of ownership to maximise your gains at a minimum of tax if you sell prior to 1st January 2015.

If you are looking to sell a Spanish property you have owned for many years, you should also consider doing so before 1st January 2015.

Spanish residents over the age of 65 who are considering selling assets and would like to invest in some form of annuity may wish to consider waiting until the new laws come into force. If selling a UK property, you may wish to sell this between 1st January and 5th April 2015 to completely avoid any tax on the gain.

Anyone who owns and rents out UK property and pays no UK tax on their rental income because of the UK personal allowance, and very little tax in Spain because of the 60% exemption from the net income, may wish to reconsider their positions. As the UK government is proposing to remove the personal tax allowance for non-residents (unless they have strong economic connections to the UK), this may result in a higher income tax liability in the UK, and now could be an opportune time to sell a property that has been owned for a long time to minimise capital gains tax.

Those looking to purchase a property would be better off entering into the contract before the end of 2014.

Although these are proposals at this stage, there are a few issues to consider here. Remember as well that you need to consider the interaction between Spanish and UK tax to determine what your tax liability would be and what would be best course of action for you.

Please contact us if you would like personal advice on your situation.

20 August 2014

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.