As you are probably aware by now, one of the best, if not the best, businesses in Spain as of late is to rent out property, specifically as a holiday home (short-term). Property prices in Spain have picked up since 2018 and we are witnessing a 5% capital appreciation across the board.
In addition to this, rental yields have been growing year-on-year by two digits for three consecutive years! Spain now ranks as the world’s second tourist destination, only trailing behind the United States of America. The prospect of investing in Spain looks brighter than ever.
The union of both capital appreciation and soaring rental yields translates into properties offering landlords a combined yield of over 10% per annum. Spanish real estate is poised for combined two-digit gains over the next years easily beating alternative investments and paltry fixed returns in a context of historic ultra-low interest rates.
Now that we have made a case that buy-to-lets are indeed an excellent investment, we want to focus on the tax advantages open to non-resident landlords.
Tax deductions available for 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.
The following requirements must be met:
- Landlord is tax resident in the European Union or EEA(nationality is irrelevant).
- The expenses you claim are in direct relation towards the upkeep of the property i.e. claiming travelling expenses would be excluded.
- You have VAT invoices to back up your tax relief claim.
Non-residents in Spain (albeit EU-resident) may deduct the following expenses from their quarterly tax returns:
- 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; refurbishment expenses and home improvements are excluded but may be claimed on selling the property.
- Community of owners’ fees.
- Home insurance premiums.
- Property repairs: plumbing, roof retiling, painting, pool pump etc.
- Utility invoices: electricity, water, gas, internet, and landline.
- Concierge, gardening, alarm & security services (i.e. in gated communities).
- Lawyer’s fees are 100% tax-deductible when calculating and submitting your quarterly tax returns.
- Property management fees.
- Advertising invoices from holiday platforms, such as Rentalia:online/offline.
- Marketing expenses.
- Home depreciation and amortization.
Please be advised that to take advantage to the fullest of the above-listed tax allowances, you will need to contract a law firm specialised in non-resident taxation, such as Larraín Nesbitt Lawyers, who have clients that reduce their tax bills by 70% or more every tax quarter on renting out in Spain.