Buy-to-Let: Landlord’s tax reliefs

Raymundo Larraín Nesbitt, August, 1. 2022

Lawyer Raymundo Larrain explains how non-resident BTL landlords can GREATLY benefit from tax allowances dramatically reducing their landlord tax bill (on average by 70%, or more).

Marbella-based Larraín Nesbitt Abogados (LNA) has over 19 years’ taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats all over Spain.

You can review here our client’s testimonials.

Article copyrighted © 2022. Plagiarism will be criminally prosecuted. 

 

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Abogados
8th of August 2022

Introduction

August. It’s again that month of the year when everyone is enjoying their holiday break and landlords in Spain are – once more – making a killing through rental income.

Have you tried booking a flat for July, August, or September? Sorry, all taken!

One of the best, if not the best, business in Spain over the last 7 years has been to buy a property with a view to rent it out (buy to let), specifically as a holiday home (short-term).

Property prices in Spain have strongly rebounded post-pandemic (since 2021). We are witnessing an annual capital appreciation of 8.5% for resale property across the board and over 10% for new builds (off-plan). In coastal areas, and large Spanish cities, it’s actually a two-digit property rise! Bottom line, property prices have risen in Spain for 12 consecutive months reaching all-new highs!

In addition to the above, rental yields are also growing by two digits year-on-year. Long term lets offer a net yield of 4.5% per annum. Short-term rentals (holiday homes) are far more profitable, delivering a two-digit return.

Spain ranks as the world’s second tourist destination, trailing only behind the United States of America, with over 84 million tourists a year. The strong demand for tourist accommodation in Spain grows every year, pushing up home prices. The prospect of investing in Spain looks brighter than ever.

Pro-tip: The combination of both capital appreciation and soaring rental yields translates into a combined yield of over 10% per annum! No other safe investment offers such high returns.

Spanish real estate is poised for combined two-digit gains over the next year, interest rate fluctuations notwithstanding, easily trumping alternative investments (bonds, commodities, cryptocurrencies, gold, etc) and paltry fixed returns in a context of historic ultra-low interest rates.

But wait, it gets even better!

Now that I have made a case on why buy-to-lets are indeed an excellent investment in Spain, I want to focus mainly on the HUGE tax advantages open to all non-resident landlords. Read on.

Tax deductions available to all non-residents apply to both short-term rentals (holiday homes) and long-term rentals

Non-resident landlords can take advantage of huge tax breaks on their landlord tax bill.

In plain English, landlords can expect to reduce their tax bill by 70%, or more, on filing their quarterly rental income tax using our accountants.

Please be advised that to take full advantage of the below-listed tax allowances you need to instruct a specialized accounting firm – such as us – with over 20 years experience in non-resident taxation. Irresponsibly self-filing tax returns, without taking proper tax advice, leads to costly mistakes with huge fines being levied.

2022 non-resident tax calendar

You must file a tax return in Spain if you rent out your property in one of the below tax quarters:

  • Q1: January – March.
  • Q2: April – June.
  • Q3: July – September.
  • Q4: October – December.

Requirements

In order to benefit from generous landlord tax relief, three requirements must be met:

  • Landlord is tax resident in the European Union or EEA (your nationality is irrelevant).
  • The expenses you claim are in direct relation towards the upkeep of the property (see tax relief list below) i.e. claiming travelling expenses would be excluded.
  • You store VAT invoices to back up your tax relief claim.

Landlord tax relief

As an example, non-residents in Spain may deduct the following expenses from their quarterly tax returns (open list):

  • Interests arising from a mortgage loan (to buy the property).
  • Local taxes and administrative charges and surcharges.
  • Expenses arising from formalising lease agreements.
  • Maintenance costs may be offset; however, refurbishment expenses (improvements) are excluded (but may be claimed on selling the property to dramatically reduce the seller’s CGT bill).
  • Community of owners’ fees.
  • Home insurance premiums.
  • Property repairs: plumbing, roof retiling, painting, pool pump etc.
  • Utility invoices: electricity, water, gas, internet, and landline.
  • Cleaning.
  • Concierge, gardening, alarm & security services (i.e. gated communities).
  • Lawyer’s fees: are 100% tax-deductible! Yes, our fees are also tax-deductible. I.e. to calculate and submit you quarterly tax returns.
  • Property management fees.
  • Advertising invoices from property portals, such as Idealista: online/offline.
  • Marketing expenses.
  • Home depreciation and amortization.
  • Etc.

 

Conclusion

Our clients are reducing their tax bills on average by 70%, or more, every tax quarter on renting out in Spain through us. 

Call or e-mail us, our friendly staff will be delighted to guide you through the procedure and explain how we can assist you by greatly reducing your tax bill.

These taxes are filed online nationwide. So, regardless of where your property is located in Spain i.e. Mallorca, Marbella, Barcelona, Valencia, Madrid, Sotogrande, etc, we can file them for you at a very competitive fee:

  • EU resident: 125 euros plus vat
  • Non-EU resident: 75 euros plus vat

To close, a gentle reminder that our accounting fee is tax-deductible!

If you want to pay less tax, please contact us.

We offer this accounting service:

Holiday Rental Accounting Service (HRAS)

Larraín Nesbitt Lawyers, small on fees, BIG on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyance, taxation, inheritance, residency, and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form to book an appointment.

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal and/or financial advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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