codex70

So if I live in Spain and own a UK holiday rental property the income generated would be taxed in a different way to if I had a long term let in the UK? The reason I ask is that we are planning to move to Spain, and would be selling our house. from the proceeds we would look to buy a UK property to rent out and keep the remainder to use in Spain. We are currently trying to decide whether to buy a long term let or holiday let, so any tax issues need to be considered.

Would a Spanish gestor be the best person so speak to about these things?

mikeglover

Ive never heard of capital repayments against the mortgage on a buy to let property offsettable against rental income - is this a Spanish tax thing?

Fred James

In Spain if you have a mortgage and qualify for tax relief you get relief on the entire monthly payment, not just the interest.

mikeglover

I presume the conditions must be fairly stringent otherwise anyone thinking of buying a property for cash in spain would be better of getting a mortgage and then the whole cost of the house would end up being tax deductible

spainrico

I think this tax relief 'door' has been closed now for new deals, those already receiving it can continue. There was talk of it being taken away for everyone but the government stepped back.

Fred James

It's not that simple. You get a 15% deduction on up to a total of €9015 of repayments so effectively the maximum you can deduct from your income tax bill is €1350.

The government can't seem to make up their minds whether they will continue to give this relief in future.

EsuriJohn

Hola Fred,

Two things have come together which means that this year I am going to have to depend on your help and advice once more. In 2009 when with your help and advice I submitted my first Residents Tax return. Following the Blevins Franks book I did not include my Government Pension (GP) in the Spanish return and benefitted from the arrangement whereby I had my UK personal allowance (PA) to set off against my GP and my Spanish (PA) to set off against my UK State Pension (SP) paid untaxed to Spain. I now understand that the new DTA means that you must now declare both pensions in Spain. Even though the GP will still be taxed in UK it will affect the Spanish declaration and raise my income in Spain above my (PA). I want to minimise the effect of this so now want to include my share of our mortgage in the return so that it minimises the apparent rise in income. It was not necessary in the past since the Spanish (PA) was well above the UK (SP) level.

I have not had to fill in the Padre programme since 2009 since I must have ticked a box which resulted in them sending a pre filled form to sign and return.

I hope this makes sense and you don't mind the length of the post but I felt it best to give as much detail as possible to inform you and perhaps help others caught by the new DTA requirements.

Fred James

Don't panic - the new DTA agreement hasn't yet come into effect and certainly won't apply to the current 2012 declaration.

The need to declare the government pension has always been a disputed subject. You certainly do not have to add it into the income box and pay tax on it directly but there has always been a box where you should identify its existence. This would potentially result in an increase in the tax rate you pay on your normal income. It's a very complicated calculation and in some cases can result in a significant tax increase and in others it has no effect.

Most, but not all, advisors have said in the past that the GP should be totally ignored but the new DTA specifically says that the details should be included hence clearing up the confusion.

I suggest you run the PADRE program and see what the effect will be if you enter the GP details. I have run a number of simulations on various income levels and it really is difficult to get a clear understanding of the effects unless you do this. One thing is for certain ¡- it won't result in less tax due!