- Rental Income and Assets declaration deadline looms

Rental Income and Assets declaration deadline looms

Written by Mark Paddon

While I normally advise on termites, damp and other structural issues, I am taking this opportunity to make past and future clients (along with all other IT readers) aware of some important tax and legal issues affecting rental accommodation in Spain, whether owned by residents or non residents.
The UK tax authority, HM Revenue and Customs (HMRC), has instigated a massive crackdown on unpaid tax. The Offshore Disclosure Facility (ODF), which some are calling a ‘tax amnesty’, is aimed at UK residents who are not declaring their offshore assets, income or gains.

People have until 22nd June to come forward and notify the tax authority of their intention to disclose, and then until 26th November, to make a full disclosure of all tax irregularities, and to pay the outstanding tax, along with at 7.5%, and the 10% penalty charge.

The Special Investigations Unit within HMRC is ready target suspected tax evaders, and will send out letters after the deadline of 22nd June to those who have not notified their intention to make a disclosure and where information suggests that tax may have been underpaid. Outstanding taxes, plus interest at 7.5%, and a penalty of up to 100% will then become payable.

HMRC is effectively offering, to cap penalties at 10% of the maximum 100% allowed, in return for registering the intention to disclose in time. Ignoring this opportunity to come clean could be very costly indeed.

Spanish tax on rental income for non residents is 24% of gross income. The net income is also liable to UK income tax, at a rate of up to 40% for higher rate taxpayers, but any Spanish tax paid can be deducted from the UK tax due.

The sale of a second home in Spain will attract a capital gains tax levy of 18% in Spain, and up to 40% in the UK above the tax free amount of £9,200. It’s worth noting that some legal companies are offering a no win no fee service to try and claim back the difference from the Spanish tax authorities since the previous 35% tax levy was proven to be discriminatory (contravening EU law) and changed.
In addition to action in the UK, the Spanish authorities can fine owners that rent unlicensed accommodation out to holiday makers and at a hefty
€30,000 many owners face losing more that the income they have gained. Often problems occur when disturbed resident neighbours (or legal holiday rental operations) get fed up with a flow of unofficial holiday makers and report owners to the authorities. Not only should short term holiday letting accommodation be licensed for such use, but a simple change of sheets service can require that the operation is registered as a business. There are of course some good reasons for the laws including health and safety standards (e.g. gas boiler installations, swimming pools and even the structure itself can be dangerous) and of course such moves serve to protect the licensed letting, hotel and Casa Rural markets.
On the plus side, anyone that comes clean on tax issues and becomes fully licensed will lessen the risk of legal claims (e.g. following accidental injury of a guest), be able to boast these features when advertising and remain in business while many other operators are shut down AND fined heavily.
People purchasing on a buy to let basis or with a reliance on holiday rental income, would do well to check out the viability of licensing by consulting a good independent lawyer prior to purchase. Stretching yourself to buy a larger property (e.g. with an underbuild guest suite or garden casita) may not be advisable, unless you can be certain of it’s legal rentability, or you intend to use it privately (e.g. solely for non paying family and friends). In many cases, not only is guest accommodation not licensed for holiday rentals, all to often it has no planning permission, which can result in fines from the local town hall. Application to rent out under license could potentially alert authorities to unlicensed building work. Existing owners with a track record of past rentals (the tax authorities have data from websites and newspaper based advertising) should consult a tax advisor or lodge their intent to declare while there is still time (see web link below). This is potentially a big earner for the authorities and in order to ensure future compliance many ‘examples’ will need to be made of past and future offenders.

While many people may escape the net, the combined fines and penalties could potentially be worth over 50% of the property value, making the risks simply too high to be ignored.

More info:- https://disclosures.hmrc.gov.uk/oaics/

NB:- Information for advice purposes only. Proper safety precautions should be taken and legal procedures followed when carrying out all purchases and works.
Information provided by Mark Paddon BSc Hons Building Surveying. ICIOB. Structural Surveys in the Valencia – Alicante . www.surveysspain.com T: 962807247 M: 653733066 . Free 16 page property buyer’s guide and structural advice available via e-mail request to This email address is being protected from spam bots, you need Javascript enabled to view it
(For tax and legal advice readers should consult a specialist lawyer or tax adviser)
ã Mark Paddon 2007