14 Letting your Property
Many buyers of property in Spain intend to rent out their new home as a fulltime revenue stream or as additional income to help defray the costs for family and friends staying there. The law in Spain differentiates between long-term rental contracts, and short-term holiday lettings.
Long-term contracts are governed by a national law, the “Ley de Arrendamientos Urbanos”, which was last updated in 1999. As in the UK, this is a very complex area, and it is absolutely essential that you use a lawyer to ensure that you understand and comply with the rules, and that you create a valid and legally binding contract.
Short-term holiday letting, on the other hand, is regulated by the provincial governments (“juntas provinciales”) – so, for example, the junta provincial of Andalucía governs the Costa del Sol, and that of Valencia the Costa Blanca.
In Valencia, as an example, the provincial government requires that all owners or letting agents who intend to let their property should first apply to the regional tourist authorities.
They will inspect the property in order to determine whether to allow or refuse the letting. If they issue a permit, this will state the conditions, which must be fulfilled (which could include for example, the provision of sufficient smoke detectors and fire extinguishers).
The rules vary widely between areas: in the Canaries, the rules are so strict that very few properties are officially approved for letting. Until recently, the rules have not been rigorously enforced, and the vast majority of properties have been let “illegally” with no tax being paid on the income.
In Valencia, the government has estimated that only some 17,500 properties are officially registered, out of over 100,000 which are actually let, and because of this, it is losing almost £100m. a year of tax revenue.
This is now beginning to change as a result of two factors:
- (1) Single Currency Requirements. The need for public authorities to attempt to balance their budgets as a result of the requirements of the Single Currency;
- (2) Complaints from Hoteliers. There is increasing campaigning by the hoteliers, who are increasingly finding they cannot fill their hotels as a result of the increase in private lettings.
In July 2000, hotel occupancy in Andalucía was only 63% and it has hardly improved since due to an ever increasing number of residential vacation lettings). The hoteliers are a very strong lobby in Spain and their influence should not be under-estimated.
It is therefore likely that the provincial governments will increasingly focus their attention on this area in the coming years, in an attempt to increase their tax revenue and to placate the hoteliers.
Non-residents should pay a 25% “withholding tax” on income from letting their property, whilst residents should include this income in their total income tax declaration. Agents must also retain and pay to the tax authorities in advance a percentage of the rental income for which they are responsible.
If an owner is found to have let his property without registering or otherwise complying with the provincial laws, he will be charged not only with breaking the law on lettings, but also with the unpaid back taxes, and fines for late payment of the taxes.
Our advice once again must therefore be to consult a lawyer to ensure that you understand and follow the legal requirements in the province in which the property is situated.