Last Updated on January 30, 2024 by Kristina Valcheva
Thinking about renting out your Spanish property and wondering if Spanish rental income is taxable in the UK?
You’re not alone. Navigating international tax rules can be confusing.
This quick guide breaks down whether your Spanish rental income is taxable in the UK, helping you understand the essentials and stay on the right side of the law. Let’s make sense of it together!
Paying tax on Spanish rental income
You must declare this income both in Spain and the UK.
When you earn money by renting out property, the country where the property is located requires you to pay tax on that income.
However, this amount is usually subtracted from your UK tax, ensuring you don’t get taxed twice on the same income.
Getting professional advice on tax laws specific to the country where you own property is crucial.
Differences in each country’s tax laws can significantly affect various aspects of your financial situation, including property inheritance and the corresponding tax obligations.
Is the income generated from renting a property in Spain taxable in the UK?
If you are a resident in the UK and you rent out a property abroad, the deal is pretty much the same as if you were making money from a property in the UK.
All the rental income from your different foreign properties is bundled together. After subtracting allowable expenses, you just pay income tax on what’s left.
What’s the UK tax rate on my rental income from Spain?
Your regular tax rate in the UK (20%, 40%, or 45%) is applied to your profit. Keep in mind exchange rates – use the one from when your rent was supposed to be paid.
Got questions? You can request a no-obligation call with a property tax advisor.
File your Spanish property tax return online
What’s the impact of Brexit on Spanish rental income?
UK property owners in Spain have encountered a much higher Spanish Income Tax rate due to Brexit. Additionally, they might lose the exemption from Capital Gains Tax when selling a previous residence.
If you rent out your Spanish property, you’ll be dealing with Spanish Income Tax. Before Brexit, UK landlords paid 19% tax on the profit.
For instance, if your Spanish property made £12,000, and you had £8,000 in deductible expenses, you’d owe £760 in tax (19% of £4,000).
Now, post-Brexit, UK landlords face a 24% tax on the full income (£12,000), resulting in a tax bill of £2,880.
Even if your property isn’t rented, you used to pay 19% tax on Spanish deemed income (property’s rateable value). Post-Brexit, this rate becomes 24%.
If you also have rental income taxed in the UK, the double taxation agreement with Spain allows you a credit against your UK tax for taxes paid in Spain.
However, if you now pay more tax in Spain than in the UK, you won’t get a refund for the difference.
Should I declare Spanish rental income on a UK tax return?
Yes. You should register with HMRC if you haven’t already.
In the UK, rental income from a Spanish property must be reported on a self-assessment tax return.
You must file an income tax return and declare your earnings both in the UK and Spain.
Double taxation agreements ensure that you won’t encounter taxation on your income twice.
It’s crucial to understand that choosing to participate in or not participate in the non-resident landlord program does not affect the requirements for filing a self-assessment tax return.
There is a special additional section on your tax return called SA106 for foreign income and tax credit relief.
Read also:
Everything You Need to Know about Spanish Property Tax for Non-residents
Mortgages in Spain for Non-residents
What is the difference between declaring taxes on UK property and foreign property?
Here are the key contrasts:
1. Declare Income: For foreign property, use the ‘Foreign Property’ pages in your self-assessment.
2. Handling Losses: Losses can only be subtracted from the income of other foreign properties, not UK ones. Keep it separate!
Can I claim capital allowances for expenses?
Only if your foreign place is a fully furnished holiday let, you can claim expenses.
With the annual investment allowance, you subtract the cost right away from your profits.
If you don’t do it right away, relief still comes over time through the writing down allowance in the following tax years.
Can I claim a loss on rental income from Spain?
If you make a loss on one property’s rental income, you can balance it out with income from another property you own abroad.
Or, you can use the total loss against next year’s profits.
Just remember, losses from UK and foreign rental income can’t be switched around. You can’t use a loss from a UK property against income from abroad, and vice versa. Keep them separate!
Got questions? You can request a no-obligation call with a property tax advisor.
File your Spanish property tax return online
Is there tax credit relief for Spanish rental income?
To avoid paying taxes twice on the same income, you can subtract the foreign tax you paid on your property income from what you owe in the UK. It’s like a tax break to ease the double taxation hassle.
Property tax return service for overseas investors
When dealing with your landlord tax return, it’s a good idea to enlist the help of a qualified tax advisor familiar with rental income from outside the UK.
Having an experienced tax expert in this area can assist you in navigating the complex rules related to foreign income and ensure that your UK income tax is kept to a minimum claiming all the available tax reliefs and applying double taxation agreements.
Why choose PTI Returns over local accountants?
- Better Value: Our services are more affordable than your local accountant.
- Peace of Mind: As part of Clunetech with over 25 years of international tax experience, we keep you compliant with Spanish tax authorities.
- One-stop Shop: File tax documents in multiple jurisdictions online with PTI Returns – a unique advantage setting us apart.
- No Language Barrier: Our tax advisors will deal with the Spanish tax authorities on your behalf.
Got questions? You can request a no-obligation call with a property tax advisor, and discover how easy it can be to manage your investments in Spain with PTI Returns.