Spanish taxes on rental income of Spanish residents

Many Belgians and Dutch people consider renting out property in Spain once they are residents in Spain. Rental income is obviously a nice addition to your regular income, e.g. your pension. Therefore, in this article we discuss Spanish taxes on rental income for Spanish residents.

Read more about the Spanish tax on rental income for non-residents.

As a resident in Spain, you pay taxes on your worldwide income and assets. Rental income you receive is also taxable in Spanish personal income tax. First, we will explain how to calculate the taxable base of rental income. The taxable base is the basis for calculating the actual tax, i.e. the amount to which the tax rates are applied. Next, we look at what tax deductions exist. Finally, we discuss the rates.

Learn more about the tax impact of emigrating to Spain here.

Taxable base

To determine the taxable base of Spanish rental income for residents, we create a distinction between the period during which you rented out the property and the period during which you did not let the property. Note that this is not your family home, but a property that you do not use as your own permanent residence, e.g. a second residence or revenue property.

In the period in which you rented out the property you must include all income. So not just rental income, but also the costs you charge the tenant, such as electricity. Up to six months of rent arrears will also be charged as income.

You may deduct costs from the rent if the costs were incurred during the rental period and if the costs were incurred to rent out the property. Deductible costs are the mortgage interest, repair and replacement costs (not renovation costs), municipal taxes such as the IBI, contributions to the community of co-owners/urbanisation, cleaning costs, insurance, publicity and brokerage costs, property depreciation of 3% per year, moveable depreciation of 10% per year if furniture is listed separately in the contract, etc.

Note: you may deduct these costs if they were incurred during the rental period. Thus, you will have to prorate annual fixed costs. If you rent for 6 months a year, you can only deduct half of the fixed costs.

Rental income less deductible expenses constitutes taxable income.

In the period during which you did not let the property, you are taxed on a cadastral income, the 'imputación de renta inmobiliaria'. In doing so, take 2% of the cadastral value as shown on the IBI assessment notice, or 1.1% of the cadastral value if the cadastral value was revised in the last 10 years. If no cadastral value is available, take 50% of the purchase price.

An example. The cadastral value of your property is €100,000. This value has not been revised in the last 10 years. From this, you take 2%, so the taxable income comes to 2,000 euros. If you have rented out 6 months, the taxable income is therefore 1,000 euros.

To calculate the total taxable income, take the taxable income from rentals and the prorated cadastral income. The total rental income after expenses should never be less than the cadastral income for one year. So in the example above, the minimum taxable income is 2,000 euros.

An example. You have rented out your property with a cadastral value of 100,000 euros during the summer months. The total rental period is 50 days. The rental income less deductible expenses is 4,000 euros. The cadastral income comes to 1,726 euros (2,000 euros /365 *315). The total income then comes to 5,726 euros.

A tax break for renting out a family home or permanent residence

If you rent to a tenant who establishes permanent residence in your property, you can reduce the taxable base by a general reduction of 60% for contracts before 26 May 2023 and 50% for later contracts. There are specific reductions of 90% (if you allow a rent reduction of at least 5%, 70%( if you are renting to young people between 18 and 35 years old for the first time) and 60% (if ur has carried out renovation works) for the letting of properties located 'zonas tensionadas' in which the affordability of rental housing is under pressure. Only in Catalonia do such zones currently exist.

An example. You have been renting out a flat all year round since 1 January 2022 to a Spanish family that uses your property as a permanent residence (like home rentals in Belgium). You receive a rent of 7,200 euros per year. In addition, you have charged 600 euros in fees. The annual cost is 1,800 euros. You can deduct these costs in full because you have rented for the whole year. Your rental income after expenses then comes to 6,000 euro (7,200 + 600 - 1,800). You may reduce this 6,000 euros by 60%. Specifically, the taxable base is then 2,400 euros.

Rates for Spanish taxes on rental income

The tax base is added to the total tax base of your total income in personal income tax. All your income (excluding capital gains), such as rental income, but also your professional income or pensions, for example, are added up. On this total income, you apply the progressive writing of personal income tax, taking into account the tax-free allowance and the scales of the autonomous region. By default, rates are situated between 19% and 47%.

In the above example, 2,400 euros is added to your other income, to which the rates of 19% - 47% are applied. Suppose you have a gross professional income of 40,000 euros per year, your total income comes to 42,400 euros. From this, you deduct the tax-free allowance and apply the national progressive rates and the regional progressive rates (see application of an unrelated example here to have an idea).

Thus, the taxability of your rental income as a resident depends on your other taxable income.

Learn more about the tax on your pension in Spain here.

What if family members are staying in your home?

Then it depends on whether your family members pay for the use of the property. As soon as they pay an (expense) allowance, you are taxable. If they do not pay an allowance, or the allowance is lower than the cadastral income, you will be taxed based on the cadastral income as if you were not renting out the property.

Do you have any questions about emigrating to Spain or becoming a resident in Spain? Please feel free to contact us about emigration counselling.

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