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 golf course or beach side view that was just too much of a draw or simply just ‘my’ place in the Sun. For many, the costs of both acquisition and annual upkeep requires increasingly to be where the head needs 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, in addition to ticking the various boxes of configuration, finish and views, to include a pre-determined or “guaranteed” annual rental income for a period of some years of a certain percentage calculated by reference to the sales prices of the chosen property.
Naturally, this is most likely to occur where the promoter/developer or subsequent operator will be actively marketing unused properties for rent otherwise they may as well calculate the value such income and deduct that from the purchase price!
If this is an important or 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 Abogado should be asked to specifically check that these provisions are clearly stipulated.
While such an offer may be seen only as 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. As highlighted above, there are several reasons for this, not least annual maintained 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 though not all owners. The rental agency 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 the sum of the rental agents commission 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 authority by way of Income Tax. They may never have touched Spain given the ease of international banking.
Additionally, while I am told that there has been an obligation for some years for Residents and Non-Residents alike to submit an annual tax return, whether or not the property is rented, the position seems to differ not only on the Owner’s country of residence but also the use made of the property:
A. When the property is rented:
- Income tax is payable on the actual rental payments received the tax rate applicable in 2020 for residents in the EU/EEA is be 19% and 24% for non EU/EEA (European Economic Area).
- It should be noted that EU residents are, I am advised, entitled to offset certain costs against the rental income to calculate the net taxable income. These costs include local rates (I.B.I.), community fees, mortgage interest payments, insurances, the costs of repair to the property, in other words, generally the costs that are not the obligation of the tenant but are assumed by the owner. Although the costs for depreciation of the property can also be included, I am told, this is likely that this will have a detrimental effect in a later calculation of the capital gain in a future sale of the property.
- Rental income for tax purposes is accrued on quarterly basis so income tax returns have to be submitted every quarter on the net profit (actual rents received less costs).
B. Imputed income, where the property is not rented to third parties and remains for the sole and private use of the Owners(s):
- On a general basis it is 2% of the Cadastral Value of the property (which are periodically reviewed and in many ways similar to the Ratable Value in the UK) which appears on the Local Rates Tax “IBI” receipt.
- In case of a property whose Cadastral Value has been reviewed in the last 10 years, the rate is set at 1,1%.
- In the case of a property without a Cadastral Value or if said value has not been notified to the Owner, the percentage is 1,1 % based on a calculation computed by reference to 50 % of the purchase price of the relevant property.
- The Tax rate payable for 2020, for non EU/EEA residents: 24% and for EU/EEA residents: 19%.
I have been asked by a comment to our online forum for further information regarding when the Spanish property is your main or sole property.
My professional colleagues have pointed out that in Spain your main home is exempt from such Income Tax. Indeed, this is the only situation when you will not pay Income Tax on your Spanish property. The main home is a concept linked to tax residency, which means in order to benefit from an Income Tax exemption on your Spanish property you will need to satisfy two criteria:
(i) That you are a tax resident in Spain and (ii) The Spanish property must be your main home.
In more recent years the ‘staycation’ model has posed a direct threat to the more established hotel trade and was seen as unfair competition from unregulated “private” tourism rentals. As a result, I m told, that the legislation was changed in 2016 to require those who wished to make their property available for rental needed to obtain a registration with the Andalusian Council of Tourism. This effectively allowed the authorities to have more control over unregulated rentals but also to flush out those who failed to declare their rental activity.
I am told this is not a particularly arduous task but it does require some effort and, like many administrative things 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 Costa property.
Given the seasonality to this activity whilst a golf view property may have the prospect of being an attractive rental throughout the 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 could be involved.
The best practice advice must be to carefully plan to ensure that your property is properly covered under the regulations for tourist rental and to make the required quarterly/annual returns.
As a final thought, you my also consider discussing you buildings and contents insurance with your local insurance broker if it’s clear that you may not be occupying the property for a number of months – there’s often a limit by virtue of the policy’s terms. Additionally, if in renting out your property on long and short term bases, will it be covered for fire and other contingencies that may occur in your absence.
Should you be interested in discussing the legal process involved in buying a property in the Marbella region, we would be delighted to assist you. Our team of bi-lingual, highly experienced and wholly independent team of Abogados are ready to help you.
Please call me, Mark FR Wilkins, during usual business hours on +34 600 343 917 or, if you prefer, please e-mail me at mark@roslegal.es
Please note that our posts are for general interest. They are no substitute for proper legal 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 or financial advice.
© Mark FR Wilkins 2021 All rights reserved.