Holiday rentals: a target for the Spanish Inland Revenue

Any expats living in Spain must also declare pensions as income even if they are below tax paying thresholds

Tax inspections are targeting 27.696 Expat pensioners and former non-residents who have not declared income

Buying a property for your own holiday use and renting it out to achieve income at other times is a sensible option for many seeking to buy their dream home in Spain, but it is very important to remember that any income derived from rentals must be declared as income when making tax declarations.

The Spanish authorities are becoming increasingly vigilant due to the large scale tax fraud which is taking place in Spain and unfortunately, ‘not knowing about tax commitments does not take away your liabilities’ , so those who fail to declare rental income face potential fines and penalties.

 In a new Resolution issued on 10th March 2014 by the Dirección General de la Agencia Estatal de Administración Tributaria (General Directorate of the Spanish Inland Revenue), general guidelines are given for the Plan Anual de Control Tributario y Aduanero 2014 (Annual General Tax and Excise Control Scheme) in order to define the strategy that tax collectors will follow throughout 2014 and in the future.  

Tax inspectors are becoming more efficient at identifying assets, rents or business activities feeds from the information obtained via tax returns, and data exchanges between domestic or international Public Administrations based on collaboration agreements. One of the priorities of the Inland Revenue in 2014 will be to get information on rentals, real estate or financial assets placed in tax havens or with low tax rates in order to identify income generated in Spain which is, subsequently, to be taxed in Spain. They will search for information on domestic or international transactions to identity the holders of those financial assets who do not declare the income obtained here or whose investments do not relate to the filed income or wealth tax returns.

Specifically, the following course of action will be taken:
a) Actions to obtain and use data in the following areas:
– Information from other Public Administrations, in particular in those cases where there may be administrative records related to business/trading activities.  It is obvious that the data contained in the Catastro (HMLR - England and Wales, Registers of Scotland (RoS) in Scotland, and Land Registers of Northern Ireland) is easily spotted and the details of the owners who  have, or have not submitted their declarations can be accessed easily. All those who have not declared assets are a potential target for a tax inspection.
– Information relating to cash flow, invoicing by credit cards or wealth signs which are inconsistent with the information given on tax returns.  

A priority scheme has been devised in order to carry out on-site inspections to detect leased properties whose owners are not declaring rental income. This is particularly important for non-residents, and more so in those cases where the rental agreement is handled by a management company because in this instance such companies are liable if they do not handle tax declarations and tax payments properly.

Tax authorities are also targeting Form 720 relating to a declaration on assets placed abroad and to detect potential revenue relating to such assets to ensure that asset owners meet their tax commitments.

Form 720 will be used to ensure that assets are declared and then that the tax paid for the revenue generated by these assets abroad is the correct one.
The exchange of data and information about assets and rights placed abroad will increase in 2014 in order to confirm that the correct taxes are applied and paid for by the tax payers.  

The Spanish Ministro de Hacienda (UK - Chancellor of the Exchequer) announced in a parliamentary session that the Spanish Inland Revenue has started inspection proceedings on   27.696 Expat pensioners and Spanish former non-residents because they did not declare their pensions (taken from the financial newspaper “Expansión”)

The Spanish Ministro de Hacienda, Cristóbal Montoro, insists that ‘they are not being treated as fraudsters’ and that they ‘are checking all cases one by one in order to prevent unnecessary detriment to their assets’ he pointed out in a parliamentary session.

According to Montoro, the number of these cases is ‘really small’ compared to a total of 800.000 proceedings that were initiated by the Inland Revenue last year.  

In addition to that, he has said that "each case is being checked under its own merits to take into account all personal and family circumstances, e.g. age, dependents or disabilities’.
The intention is to allow for a deferred payment scheme or instalments, wherever possible, and ‘avoid causing detriment to the assets of those affected by it’.

The head of the Inland Revenue confirms that they are ‘granting automatic deferred payments without requesting further guarantees’ to those whose debt is below 18.000 Euros and that more than 3,800 people who were subject to additional self-assessment tax returns as a result of an inspection, have benefited from a total amount of 5.21 million Euros to be paid on deferred payments.    

In a nutshell, all taxpayers, whether tax residents or not in Spain, need to be very diligent with their tax affairs when it comes to tax liabilities. It is advisable to engage the services of a professional to avoid any fines or sanctions and ensure absolute peace of mind.

Information supplied by Interlaw

Visit our Murcia Property section for property news and listings in the Murcia region.