stevesainty

I'm a little confused about how UK rental income is treated when making a Spanish tax return.

I was talking to my Sister yesterday, who is resident in Spain, about taxation. She correctly declares her UK rental Income on her UK self assessment return.

She uses an English speaking agency to complete her Spanish tax return.
The income figure they used for the return was the gross amount, that is without any deductions for expenses or mortgage interest. The mortgage on her UK property is 'Interest Only' and therefore the net rental income is very small. As a result she is currently paying a lot of Spanish tax.

It is my opinion that she should only be declaring the net rental income and not the gross.

If this is indeed the case, could an amended return be submitted and the tax paid to date be refunded?

Also whilst trawling the net for information on this subject I came across an article that stated that only 50% of the net rental income need be declared in Spain whether that income was derived from a UK or a Spanish property.

I would greatly appreciate your thoughts on this matter.

Fred James

You pay tax on 40% of the net rental income. Mortgage interest and other costs are allowable expenses. These rules do not apply to holiday lets, only long term lets.

The 60% reduction is going down to 50% next year.

stevesainty

Thank you Fred, I thought that you would know.

I don't suppose you have a link to where this is written down do you, before I go and complain to the offending agents.

Fred James

https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764

Articulo 23

stevesainty

Thank you very much Fred.

Porth

Dear Fred if one say owns three properties and unencumbered and save for agents fees + Vat and day to day mtce and say the net is £20k are you saying please that Spain takes £8k

These would be long term UK lets as under the Landlord and Tenant Act and are only of six months duration but then capable of either further six/12 months extensions or periodic on a month to month basis.

That charge would be horrendous and both France and the UK have more generous regimes.

Thanks Fred for your continued input and help it is appreciated.

Porth

Sorry Fred should put my glasses on you say tax on 40% of the net rental income. So tax on £8K a totally differing matter. Then the tax would depend upon the overall income level? If the houses are jointly owned would that make a difference please for the two parties have very differing income levels.

Once more my sincere apologies.

Simon_100

Sorry, but what is this "60%" reduction, this doesn't seem to be mentioned before or since?

Simon

Fred James

If you are tax resident and let your property on a long term rental you only pay tax on 40% of the net rental.

snikpoh

... meaning, you will pay tax on 50% of the net rental from next year (just in case it was still not clear)

pnwheels

Is there no personal allowance here where you only pay tax on any income above this?

Fred James

Yes, there is.

Simon_100

Thanks Fred, this is really helpful.

So you pay IRPF on 40% (OK, 50% as of next year), at rates subject you your income in the normal way?

While I'm about it, date I mention income from QROPS? How are these treated, especially as the origin of the QROPS was a government based pension fund, say the NHS.

I didn't see any mention of Death Duties on UK assets either - are these 'out' of the agreement? And in which case who takes the duties, HMC&R or the Agencia Tributaria?

Thanks once again

Simon

chopera

Also I guess if the OP's sister has already paid income tax on the rental income in the UK, the tax payable in Spain can be reduced by this amount according to the dual taxation agreement?

Fred James

Yes, the net rental income after the deduction is taxed as earned income at the appropriate rates.

Income from a QROPS pension is treated as investment income, but only a smaller percentage is taxed like any other annuity. The reduction depends on your age when you take the benefits. For example, if the annuity is first taken when you are aged between 60 and 65, only 24% is taxed. I don't know whether a QROPS derived from a UK government pension would be treated differently. You could argue that once the funds were transferred in a QROPS scheme, it ceased to be a government pension.

"Death Duties" ie IHT are taxed very differently from the UK. The key difference is that the beneficiary pays the tax rather than the tax being paid out of the total estate and then divided between the beneficiaries.

Assets situated in Spian are always taxed in Spain, irrespective of the tax residency of the recipient.

Assets situated outside Spain are only taxed in Spain if the recipient is tax resident in Spain.

Edit. From April next year you will not be able to transfer unfunded UK Government defined benefit pensions into a QROPS scheme.