Gecko Towers
For many owners of a property in the Marbella region, be they long term owners or recent buyers, there are several drivers that cause them to chose to invest in this market.
It may be a lifestyle purchase, a reward for a lifetime of hard work, a the golf course or beach side view was too much of a draw or simply just “My Place in the Sun”. For many, the costs of both acquisition and annual upkeep increasingly requires the head to firmly rule the heart.
In deciding where to buy the question appears to be so relevant that it is not at all unusual for a developer or their sales agent to market a new development, often comprising many newly built properties, to include a “guarantee” of rental income for a period of some years at a certain percentage calculated by reference to the sales prices of the chosen property.
If this is a key driver for you, you need to make sure the final buying paperwork specifically states who this guarantee is being offered by and the precise terms upon which it will be honoured. Importantly, your chosen Spanish Lawyer (Abogado) should be asked to specifically check that these provisions are clearly stipulated.
While such an offer may be seen a giving a material discount on the sales price back to the buyer over a period of years there has never been more interest in seeking to sweat a foreign property asset to ensure that it delivers some meaningful funds back into the owners coffers to assist in the costs of its upkeep. There are several reasons for this, not least annual maintenance costs, such as Community Fees and local property taxes such as IBI.
In a previous era the ability to place your property for rental on an international website that would advertise its availability, handle bookings and process payments became a normal practice for some owners. Often an on the ground team of rental agents would arrange for short term renters to be met, either at the property or the airport, given keys, a welcome pack of shopping and linen and wished a happy holiday. The proceeds from the rental would be paid to the owner less commissions and expenses. All apparently simple and attractive to the various parties.
A number of years ago the local tax office – colloquially called “the Hacienda“ – cottoned onto the regular practice of an owner renting his/her property at various times during the year and invariably sums being paid from holiday tenants which were undeclared to the authorities for the purposes of Income Tax.
Aimed at a living under declaration there has been an obligation for some years for Non-Residents to submit an annual income tax return whether or not the property is rented. The position differs not only on the owner’s country of residence but also the use made of the property:
A. When the property is rented out:
Income tax is payable on the actual rental payments received and the tax rate applicable in 2024 for residents in the EU/EEA is be 19% and 24% for non EU/EEA (European Economic Area). I have been told that EU residents (and those resident in Iceland, Norway and Liechtenstein) are entitled to offset some costs against the rental income to calculate the net taxable income. These include local rates (IBI), community fees, mortgage interest payments, insurances and the costs of any repair to the property. Unfortunately, such deductions cannot be used by owners who are residents of non-EU/EEA countries, including the UK, USA and Canada. Rental income, for tax purposes, is accrued on quarterly basis so an income tax return needs to be submitted every quarter, based on, dependent on the tax residency of the owner, the gross or net income.
B. Imputed income, where the property is not rented to third parties and remains for the sole and private use of the Owners(s):
I am advised that on a general basis, it is 2% of the Cadastral Value (Valor Catastral) of the property (which is periodically reviewed and in many ways similar to the Ratable Value in the UK) it appears on the Local Rates Tax “IBI” receipt. In case of properties whose Cadastral Value has been reviewed within in the last 10 years, the rate is set at 1,1% of the Cadastral Value.
In more recent years the staycation model has posed a direct threat to the more established hotel trade being unfair competition from unregulated “private” tourism rentals. As a result I am told, that legislation was changed in 2016 to require those who wish to make their property available for rental to obtain a registration with the Andalusian Council of Tourism. I believe that these licenses are transferable from an owner to a subsequent acquirer of the same property. The licensing process effectively allows the authorities to have more control over unregulated rentals but also to flush out those who failed to declare their income from their rental activity.
My colleagues tell me that this is not a particularly arduous task, but it does require some effort. So like many administrative steps in Spain, it is best handled by your Abogado. A failure to obtain such a registration will prevent you from legitimately seeking holiday lets and contributing to your overall “business plan” for the management of your property. I have been informed that a number of the major short term rental websites now require sight of your license before they will add your property to their listings.
Various other moves may affect your ability to achieve short term “holiday rentals” with your purchased property. A number of Urbanisations, keen to preserve the managed integrity of their environment and not be put to too much additional work in serving in numerous short term rentals, have introduced restrictions as to when and whether rentals may be made. Some have passed blanket bans on short term rentals whilst others have insisted that such rentals may only take place in certain months.
Malaga City council, in an attempt to limit such short term rentals, has gone one step further. They have introduced a qualification that any property used for short term rentals must have its own access to the street from the apartment being rented and not via a communal entrance arrangement. Of course, most apartments do not have such access. In relation to the number of applications that Malaga City has received to convert former commercial premises into residential properties, permission is being granted on the basis that if rentals are to be made of the renovated property then they should be by way of a tenancy with a minimum duration of one year. Again, limiting the short term rental viability.
Given some seasonality to this activity whilst a golf view property may be an attractive rental throughout nine months or so from September each year, a beach side property may only have a limited three to six month opportunity for such rentals. However, the likely rents that a decent property can command will vary throughout the year but substantial sums may well be involved.
The best practice advice must be to carefully plan to ensure that your property is fully covered under the regulations for touristic rental and to make all of the required quarterly/annual returns. This should deliver maximum opportunities to make a viable income from your Marbella property.
Should you be interested in discussing the process involved in buying a property in the Marbella region, we would be delighted to assist you. Please contact me to discuss your precise requirements.
Please note that our posts are for general interest. There is no substitute for proper advice tailored to your specific circumstances as provided by a qualified Abogado who is experienced in the application of the Spanish Law.
Nothing contained in this article should be seen or taken as the writer or the publisher providing legal, tax or financial advice. All details have been reasonably fact-checked and all efforts have been taken to ensure that facts are accurate as at the date of publication.
My details: Mark FR Wilkins, during usual business hours on +34 600 343 917 or e-mail me at mark@therightsgroup.com
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