Palmerston

Hi Bob,

I got conflicting advice as to whether any imputed income is payable in Spain (if a permanent Spanish resident) on a retained UK property that isn’t rented out – or has a large void period between lets.

One lawyer told me “Yes, there is imputed income”. Another said “No, there isn’t”. But I couldn’t pin either of them down as to what the law actually says.

May I ask if your lawyer was able to provide you with the definitive law on this matter? I can't get to grips with it.

Regards

bobd22

My situation was slightly different. We bought our home in spain in 2008 intending to use it as a holiday home for around 3 years and then move to Spain full time. That time became quite protracted for various reasons. During that time we paid the non resident tax in Spain. At the end of 2018 to ensure we were covered for the impending brexit we decided I would move to Spain full time and get residency. My wife had to continue working in the UK and joined me full time in Spain as soon as the covid restrictions allowed. During that 18 to 20 months she lived in our UK home so the imputed rental income didn't come into play as it was her main home and mine was Spain. Once my wife joined me full time in Spain we rented the UK property out and pay tax to the UK on that income. I have read about the imputed rental income tax on a UK property if its used as second but not main home, however I don't know anyone personally that pays it. I was told that it doesn't apply to us due to our property being rented and actual tax being paid all be it to UK not Spain.

bobd22

I would also think that if the property was vacant for a period it would have to be over the period of the tax year. I say that because if it was let for a month over the tax year and empty for say 8 months then let again you would still put in a UK tax return declaring the income. You would have no tax to pay due to allowances but you would have legally declared. I did ask about it to a solicitor and a gestor both more or less intimated don't bother re UK property. Of course that's not a legally binding response. I often wonder how one would calculate imputed income on UK property. It's easy enough re spanish property as its based on the valor catastral so in the UK that really would relate to the old rateable value. But UK did away with and uses tax bands re council tax. It would be interesting to know if anyone does actually pay it on a UK property? Mind I guess most who retain a UK property have them rented negating need to pay in Spain.

Palmerston

Thanks for the replies, Bob. Much appreciated.

Yes, I read about that imputed UK rental income a long time ago on a now defunct blog. Can’t find it anywhere.

And now I’ve got 2 lawyers giving diametrically opposing views without backing it up. I do well to get more than one vague sentence in reply, which doesn’t inspire much confidence either way.

Palmerston

Bob,

It’s now 2-1 in favour of having to pay notional rental income tax on a vacant UK property.

Just found this paragraph from Blevins Franks:

“This notional rental income also applies to overseas properties owned by Spanish residents. In this case, it is 50% of the acquisition price that is used to calculate the annual charge, which is 1.1% of the value. The corresponding amount will be then taxable at 19% or 24%, as indicated above. Non-Spanish residents will only need to pay this tax if they have a Spanish property not rented out (i.e. a holiday home in Spain available for them).”



Shows how crazy the system is. One could have bought and retained a house in prime central London decades ago for a few tens of thousands, so the notional rental income tax payable today would be loose change, even though the property would now be worth many millions. Yet, a recently purchased bog-standard UK property costing just the national average would pay more tax...

bobd22

So that shows how to calculate the value for this tax. As you say on a recentish UK property purchase that would amount to significantly more tax to be paid than non resident tax on Spanish property. It seems a crazy system to be fair.

bobd22

I also wonder where one would stand re this if say you didn't rent out your uk property but let a close family member live in it rent free?

Palmerston

I don’t know.

On the one hand, I suppose the owner of the UK property could argue that they have no access to it, can’t enjoy it as a holiday home, and so can’t use it as a base whenever they’re in the UK

On the other hand, the Spanish authorities could argue that it’s the owner’s choice not to charge rent, in which case there’s notional rent to pay

I remain clueless

bobd22

Yep same here🙂

bolton wanderer

Watching with interest.... Our former UK primary residence is left without any rental income, However, our son stays over the occaisonal night to satisfy our UK house insurance.

I can understand Spain invoking a Spanish tax to calculate a "number" based on the cadastral based on the value of a Spanish property. However, how would this work for property in the UK? Would this be based on the council tax bands? or on the old rates system? or on some notional value?

I have to be honest and disclose that I don't offer the UK HMRC, or Spain, any chance to charge me a "non resident tax" for my UK property. I could be wrong but I will not be paying this tax.

Ronnyone

If you have a UK property you have to declare it on your modelo 100 ( and of course on your 720). In the tax declaration you will fill out a box relating to valor castral etc this will set the imputed tax. So it has to be on every tax declaration even if its empty. The castral value is basically your council tax band value not the purchase price. If you do use it or someone else does you put number of days and you should also put who that is but most people don't really do that as it only really works for NIE/DNI numbers. Another reason why you need a proper accountant to do your tax.

bobd22

See Palmersones link he previously posted from Blevins Frank's. Basically the Spanish imputed rental on a UK property is based on 50% of price paid when bought and you pay tax at 1.1% tax on that value. It's not council tax bands. As for declaring it on your 720 yes you do if you paid more than 50,000 euros when purchased. However nowhere on the 720 do you show if the property is rented all you show is value based on price purchased and percentage of the property you own. The fact it's rented is shown on your Spanish renta declaration income earned which is taxable in UK.

bobd22

I doubt you will be the only one taking that view. I once read some time ago now that reason non resident property owners pay non resident tax to Spain is because Spain provide things like airports/ ports, roads and other infrastructure that allow non residents to use their property . That is paid for from taxes paid by residents but not non residents hence non resident tax. I can see some logic to that but if the property is in UK such things are paid for from UK taxes not Spanish. If the argument is but you use Spanish infrastructure to enable you to get to the UK yes but once resident you become Spanish tax payer so pay your dues for that. To me it seems a strange thing for Spain to tax you on a property in the UK . I think most will do same as yourself unless they rent it out which negates this tax.

Millhouse

Well, I just prepared the returns and the accountant put it on. 1 month void so hardly a big deal.

bobd22

No one month wouldn't be a big deal and you have peace of mind