IF you own a rental property in Spain, you must declare your rental income to the Tax Agency in your income tax returns, or risk facing massive fines.
The 2024 income tax return campaign begins on April 3, and can be completed online.
Should the government detect an undeclared rental property — for which the agency has a number of tools, including monitoring utility bills and the number of residents registered at the property — penalty fines can reach as high as 150% of the undeclared amount plus interest for serious offences.
Failing to declare rental income would also exclude owners from the tax benefits made available by the 2023 Housing Law, which allows for the deduction of maintenance fees, mortgages, utilities, agency fees, and other renting-related taxes for owners with long term rentals.
The Tax Agency takes undeclared rentals seriously, and for good reason.
According to a 2020 report by the Ministry of Finance Technician’s Union (GESTHA), 1.28 million rental properties were undeclared, or some 40% of all rentals in Spain.
When rental income exceeds 1,600 per year, owners must declare their earnings in their annual income tax return.
Additionally, they must report the type of property, as well as whether ownership is distributed across multiple co-owners, in which case each must report their rental income.
Failure to accurately declare can result in a range of fines, depending on severity.
Minor infractions — considered as such when the undeclared income is less than 3,000 euros and there’s been no clear attempt to conceal it — are fined 50% of the undeclared amount.
When this amount exceeds 3,000 it is considered serious, and depending on whether the owner attempted to hide the undeclared income from the tax agency, fines can soar to as high as 100-150% of the income that should have been declared.
Benefits for the honest
As part of the 2023 law, benefits are available for owners operating long term rentals.
The law is meant to encourage owners to rent out their properties to long term tenants as opposed to short term ones, and provides up to a 60% deduction on net yield.
Owners can deduct maintenance expenses and repairs, as well as agency fees when an external company is involved in the management of their properties — although this only works if it was the owner who paid these fees and not the tenant.
Other expenses available for deduction under the new law include mortgages, real estate taxes, and taxes relating to cleaning, garbage services, and utilities.
READ MORE
