UK Tax on Spanish rental income: a guide for property owners

The Spanish rental market can be an exciting and lucrative venture for UK residents. Not only does it present an opportunity to own prime real estate in some of the country’s hotspots, but it can be a great source of passive income all year round.

With this in mind, what UK tax is owed on Spanish rental income, and are there any other responsibilities that property owners need to be aware of? 

Do I Pay UK Tax on Spanish Rental Income?

Simply put, any UK resident will need to pay tax on their annual income, whether it’s generated in the UK or not. 

The UK follows a system of worldwide taxation, meaning all foreign income, including rental earnings, must be reported to HMRC every year as part of a self-assessment or earnings submission.

However, Spain also taxes rental income from properties located within its borders. 

This means landlords need to be aware of (and compliant with) Spanish tax laws while also fulfilling their UK tax obligations. 

The good news for property owners is that the UK and Spain have a double taxation treaty to prevent being taxed twice on the same income. 

Let’s take a closer look at what this means.

Double Taxation Agreement Between the UK and Spain

The UK and Spain have what is known as a double taxation treaty, meaning income from property in Spain is not taxed twice. Practically, this means that if you pay tax in Spain on your rental income, you can deduct that amount from your UK tax liability.

For this to work there are a few things you need to do.

• Maintain accurate records of all income and tax payments made in Spain.
• Have the evidence of these payments when filing your UK tax return.
• Ensure correct tax calculations for both Spain and the UK to avoid penalties or overpayments.

It can be a time consuming process but it does mean you aren’t paying tax twice for income.

How is Spanish Rental Income Taxed in Spain?

With this in mind, what tax obligations do you have in Spain?

Spain imposes different tax rates depending on whether you are a resident or non-resident. 

• Non-resident landlords (including most UK owners) are taxed at a flat rate of 24% on gross rental income. However, for EU/EEA residents, the rate is 19%, and deductible expenses (such as maintenance, insurance, and property management fees). Post-Brexit, UK citizens no longer benefit from these deductions.
• Spanish residents pay tax on rental income at progressive rates, with allowable deductions reducing their taxable income.

Any UK property owners in Spain must register with the Spanish tax authorities, file quarterly tax returns, and keep detailed records of rental earnings and expenses. Failure to do so can result in fines and backdated tax payments.

Spanish rental income must be declared quarterly through Spain’s tax system. Late or missed filings may result in penalties.

How to Report Spanish Rental Income in the UK

To comply with UK tax regulations, Spanish rental income must be included in your self-assessment tax return under foreign income.

If you have already paid tax in Spain, you can claim Foreign Tax Credit Relief to avoid double taxation and reduce your UK tax due.

Tips for a smooth filing process:

• Convert the Spanish rental income and any taxes paid into GBP using HMRC’s official exchange rates.
• Declare the income on your SA106 Foreign Income section of your UK self-assessment tax return.
• Deduct any allowable expenses (e.g., property management fees, maintenance, and mortgage interest) before calculating UK taxable income.
• Apply for Foreign Tax Credit Relief to offset tax already paid in Spain.
• If you’re unsure, speak to an expert about your options as soon as possible.

Getting on The Spanish Property Ladder

Tax is a consequence of income, and there is plenty of potential in the Spanish market for investors.

Investing in Spanish real estate can be a lengthy process, from finding your dream property in Spain to securing a Spanish mortgage and navigating the law and any contractual complexities.

For those considering investing in Spanish real estate, understanding the property market and purchase process is crucial. 

Here are some important tips to get you started:

• Research the Market – Particularly if you’re looking to rent out your property, some locations are more desirable than others. Finding the best spots for investment may  lead you to consider factors like tourism demand, local amenities, and long-term property value growth.
• Secure Financing – If you require a mortgage, you need to understand how the process can vary for residents and non-residents. Compare options from Spanish and international banks, bearing in mind that non-residents may need a higher deposit of typically around 30%.
• Understand Legal Requirements – It’s advised that you work with a Spanish broker when handling contracts, taxes, and the mortgage process. This can help overcome any issues with a language barrier and means that you fully understand the details of your agreement.
• Obtain an NIE Number – You’ll need an NIE number if you want to buy a property in Spain. An NIE is a foreign identification number required for property transactions and taxes in Spain.
• Budget for Additional Costs – Non-resident buyers won’t just need a higher deposit, they’ll also need around an extra 15% of the property value for legal fees, property transfer tax, and ongoing maintenance expenses.

Entering the Spanish property market can be a very rewarding investment, but proper planning and legal guidance are an essential for success.

Conclusion

Understanding UK tax on Spanish rental income is a key part of property ownership, particularly if you’re making a significant income from a home, or several homes in Spain.

To avoid penalties and backdated payments, both the UK and Spanish regulations are something you need to have a solid grasp of.

With the help of expert tax and mortgage advisers, deductions and the double taxation treaty, it can be a profitable and lucrative investment for UK property owners in Spain.