UK Rental Income, tax query.

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UK Rental Income, tax query.

Postby jogger » Wed Mar 10, 2021 9:59 am

Hi
When we move over as residents in May we will be renting out a property in the UK as extra income. Where do i pay the tax on that and if it is in Spain what is the rate on rental income, I've been told its 40% on rental income but our tax advisor in Spain doesn't seem to be replying to our emails. Obviously they're not lacking business.

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Re: UK Rental Income, tax query.

Postby elusive » Wed Mar 10, 2021 10:08 am

You declare the money in both spain and the uk and it can be taxed in both but you then off set it if that happens.you have your 12k uk allowance though. Isnt there a discount on 40% of it? Not paying 40%. Cant remember off the top of my head but i think you pay the standard 20 something % . Theres other renters on here who can confirm

Basically you need to get a non residents landlord form from hmrc. Fill this in and send back and you will get your rental income paid to you tax free (presuming you go through an agent and they deduct tax before you get it) you then decalre your rental income in spain. Remember if the house is jointly owned to split the income on your spanish tax return. You also claim a % if you have repairs done amongst other things

Every year you need to file a self assessment with hmrc declaring the rental income. 50/50 if jointly owned.

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Re: UK Rental Income, tax query.

Postby Paddy Pumpkin » Wed Mar 10, 2021 10:46 am

Elusives reply is pretty accurate and I will add to it to clear up some questions.

OP moves to Spain in May 2021
So you will have to start making tax returns in Spain for this in 2022. The property I imagine was purchased more than EUR50K so you will need to declare this on the Modelo 720. There is no tax payable it is just a reporting return and must be completed by end of March 2022. This can only be done online and you will need a security certificate to do this, or your Spanish tax person will do it for you.

UK income tax. This will be reported and paid just like you always did when you lived in the UK, with the exception of you cannot longer do it online via HMRC website as you are non UK resident. There are softwares available for about 15 to 20 GBP which you can use to complete the UK return. Personally I recommend ABC software as you can download it for free and you only pay for the software at the point when you use the software to upload the return to HMRC.

Spanish Income Tax. Firstly whatever tax bill you get for the house rental in the UK be offset against the Spanish bill. So say on your Spanish return you get a bill of 700 EUR but in the UK you paid 800 EUR worth of tax then you will only pay 100 EUR to Spain i.e. the difference.

Spain is much more accommodating in terms of what is tax deductible.
So like the UK repairs etc are deductible. In addition you can deduct depreciation of 3% of the buildings purchase price (building only, not land value). Additionally you can amortize furniture etc. Then the big one.....you only pay tax on 40% of the taxable income.

Quick example. GROSS Rental income 15k...cost 5k. Net INCOME 10K. Then of the 10k only 40% is taxable. So the amount you get taxed on is only 4k. That 4k is taxed on sliding scale of roughly 19% to 48%.

The above is a very rough guide of the concept of how rental income works for UK rental income for someone living in Spain. . However the big picture is that it is unlikely that you will end up with tax to pay in Spain as you will most likely end up with a bigger bill in the UK than Spain because of the rule that only 40% of the net income is taxable.

I caevat that with if you want more precise details you would need to give more precise personal information

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Re: UK Rental Income, tax query.

Postby casita-bonita » Wed Mar 10, 2021 10:52 am

I believe that the 40% tax rate is levied on short term rental income for non residents. We rent out our UK home and have to declare the income on both uk and spanish tax returns annually. It is treated as straigjt oncome and taxed at standard rates after allowable deductions.

Been doing this for 12 years and so far we have always been below the personal threshold for both countries and so not paid any tax.

As mentioned above notify the management co that you are not a uk resident and you will receive the gross rent, less their management charges.
Regards

Bob

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Re: UK Rental Income, tax query.

Postby jogger » Wed Mar 10, 2021 11:07 am

Thanks all for that info, i will sort through that in my tiny brain but this looks really useful , very much appreciated.

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Re: UK Rental Income, tax query.

Postby El Cid » Wed Mar 10, 2021 11:38 am

The 60% reduction only applies to long term rentals - typically lets of over 1 year.

Sid

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Re: UK Rental Income, tax query.

Postby markwilding » Wed Mar 10, 2021 2:52 pm

The first time I did my UK returns, I went through it over the phone with a helpful person in the UK tax office who explained what needed to be filled out and which parts could be left blank. Now we just use a copy of the previous year's one to guide us through the current one.

The whole process of filling it out takes well under an hour The deadline is earlier than one for a UK resident and has to be in by the end of October. The tax allowance will be double if the property is owned by you and your partner. We fill out two returns and split the amount in half on the each return. The only differences are interest payments and dividends received as individuals which also need declaring.

A late return incurs a £100 fine, which by coincidence the last one due to all the problems with Covid, we sent ours in two weeks late and got a fine, although fortunately, we have since successfully appealed.


The system and allowances are different here to how other posters have explained it but that might be because The Basque Country has different rights regarding taxes. What I'm not clear about though is if it is just here that is different or if all the regions vary slightly from one another .

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Re: UK Rental Income, tax query.

Postby Wicksey » Wed Mar 10, 2021 4:17 pm

markwilding wrote: Wed Mar 10, 2021 2:52 pm The deadline is earlier than one for a UK resident and has to be in by the end of October. The tax allowance will be double if the property is owned by you and your partner. We fill out two returns and split the amount in half on the each return. The only differences are interest payments and dividends received as individuals which also need declaring.
The deadline for a paper return for everyone is the end of October, regardless of where you live. It is the end of January if you do it online. I do a paper return as I do not want to bother to try to download and pay for the software to complete the non resident pages online, mentioned by Paddy Pumpkin above. As non residents there isn't a way of avoiding that section which isn't available for free via HMRC.

On the property pages there is a box to tick if the property is owned jointly and then you can split all income and expense payments 50/50.

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Re: UK Rental Income, tax query.

Postby Paddy Pumpkin » Wed Mar 10, 2021 4:41 pm

jogger wrote: Wed Mar 10, 2021 9:59 am Hi
When we move over as residents in May we will be renting out a property in the UK as extra income. Where do i pay the tax on that and if it is in Spain what is the rate on rental income, I've been told its 40% on rental income but our tax advisor in Spain doesn't seem to be replying to our emails. Obviously they're not lacking business.
One other thing to keep in mind is that if you move to Spain in May of 2021 then you will be deemed tax resident in Spain for the whole of the 2021 Spanish tax year (which is the same as the calendar year). This means you are effectively already a Spanish tax resident (if you go through with the move) and anything you do now is subject to Spanish taxation.

You should also keep this in mind if you are thinking of doing any tax planning I.e. doing things to minimise tax bills. If you arrive in Spain after July 1st then you won't be tax resident in Spain for 2021.

I would urge you to take some professional financial planning advice before getting the ball rolling on moving. Not just seeing an accountant or gestor as often they will only help you with doing tax returns and not planning especially if they only have a Spanish or UK operation and don't deal with both jurisdictions.

A couple of examples of things you might do before May that could be very costly as they will be deemed taxable in Spain. Sell a house in the UK....this may be subject to Spanish capital gains on every cent of gain from the day you bought it. Take the tax free lump sum from your UK pension (not taxable in the UK) ....this will be subject to Spanish income tax at up to 48% . This is not an exhaustive list there may be others depending on your personal circumstances.

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Re: UK Rental Income, tax query.

Postby Paddy Pumpkin » Wed Mar 10, 2021 4:53 pm

El Cid wrote: Wed Mar 10, 2021 11:38 am The 60% reduction only applies to long term rentals - typically lets of over 1 year.

Sid
Adding to what Sid said.

The exact rule is that the rental property must be the residence of the tenant, so include wording to that effect in the lease.

Additionally keep in mind when declaring the rent in Spain that you are asked on the tax return for the ID number of the tenants. I suggest that you get the tenants passport numbers included on the lease. Also get the lease to state that you will be required to share the details of the tenants with the tax authorities in the UK or any other country as is deemed necessary as a result of your own personal tax matters.

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Re: UK Rental Income, tax query.

Postby jogger » Wed Mar 10, 2021 5:20 pm

Thanks, sorry just a bit more detail. We have residency my wife will pick up her TIE when we get back, i got mine in October, we're in the UK because of in-laws health and to finalise things, like letting out the flat. It's a one bedder and we've been told to expect £800 month it's currently in my name but from reading the thread, I'm thinking it's probably better to put it into both our names. It's a tax specialist we are trying to use in Spain hopefully we will hear back soon.

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Re: UK Rental Income, tax query.

Postby Wicksey » Wed Mar 10, 2021 5:37 pm

Paddy Pumpkin wrote: Wed Mar 10, 2021 4:53 pm

Additionally keep in mind when declaring the rent in Spain that you are asked on the tax return for the ID number of the tenants. I suggest that you get the tenants passport numbers included on the lease. Also get the lease to state that you will be required to share the details of the tenants with the tax authorities in the UK or any other country as is deemed necessary as a result of your own personal tax matters.
I've never been asked for any ID for my tenants. My gestoria does the tax return in Spain and she's never asked for that.

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Re: UK Rental Income, tax query.

Postby El Cid » Wed Mar 10, 2021 6:38 pm

I thought it was the other way round. In Spain a long term tenant has to give the NIE of the landlord. That way Hacienda can catch landlords who do not declare rental income.

I could not apply in the UK.

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Re: UK Rental Income, tax query.

Postby elusive » Wed Mar 10, 2021 6:47 pm

The contact (if you have one in spain )will contain the name and DNI/NIE of the owner and tennant. The landlord is also supposed to lodge the deposit with the relevant regional department. Not that many do

If i remember right our gestor said the section for the uk tennant ID isnt needed. The section is there as it presumes the rental income is coming from a spanish rented property so they want DNI or NIE

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Re: UK Rental Income, tax query.

Postby elusive » Wed Mar 10, 2021 6:50 pm

jogger wrote: Wed Mar 10, 2021 5:20 pm Thanks, sorry just a bit more detail. We have residency my wife will pick up her TIE when we get back, i got mine in October, we're in the UK because of in-laws health and to finalise things, like letting out the flat. It's a one bedder and we've been told to expect £800 month it's currently in my name but from reading the thread, I'm thinking it's probably better to put it into both our names. It's a tax specialist we are trying to use in Spain hopefully we will hear back soon.
Any half decent gestor/economista will be able to help you with declaring uk rental income. Its a pretty basic and standard thing

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Re: UK Rental Income, tax query.

Postby Paddy Pumpkin » Wed Mar 10, 2021 7:47 pm

Here is a link to the discussion about tenants ID numbers. You can put X in the box for now but it might not always be like that

viewtopic.php?t=39427

And some base info as to why the Hacienda wants it
https://www.elespanol.com/invertia/mis- ... 685_0.html


When you do a rental contract in the UK you have to GDPR stuff anyway as you are in possession of tenants data so you have to tell them how you will store and use their information. You also have to confirm the tenant has a right to be in the UK so you will need to see a passport (other documents are acceptable but that is the easiest way).

My take is that these things are getting tighter everywhere and maybe Hacienda will figure some way to insist that you give your tenants ID number or something....so why not just put the line in the GDPR part of the contract now. It is much easier now than having to get the info later and get the tenants to sign new GDPR etc.

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Re: UK Rental Income, tax query.

Postby Paddy Pumpkin » Wed Mar 10, 2021 8:05 pm

jogger wrote: Wed Mar 10, 2021 5:20 pm Thanks, sorry just a bit more detail. We have residency my wife will pick up her TIE when we get back, i got mine in October, we're in the UK because of in-laws health and to finalise things, like letting out the flat. It's a one bedder and we've been told to expect £800 month it's currently in my name but from reading the thread, I'm thinking it's probably better to put it into both our names. It's a tax specialist we are trying to use in Spain hopefully we will hear back soon.
When did you both submit you residency application? Also when did you get residency granted (I think that date might be on yiur TIE)?

The date you got the TIE in your hand isn't really important but the other two dates are.

There is some scope for you to have Spanish residency and not be a tax resident in Spain...very limited set of circumstances but from the information you have given it might be possible. The reason is the transaction to change ownership to two names is best done when you are still a UK resident. So maybe it could be worth you hanging around the UK until July with just some visits to Spain to keep your residency valid. Having said that it cost me about 700 GBP to change ownership on one property in the UK so maybe it's not worth it depending the rental income and also what other income you have.

As always tax gets complicated .....my suggestion is see more than one tax advisor and see if the both tell you the same thing. I saw 4 when I moved here first and they all gave me different answers and all were wrong. So maybe see what a professional has to say and then if you are anyway financially literate buy a copy of the Blevins Franks book and see if what these guys told you is correct

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Re: UK Rental Income, tax query.

Postby jogger » Wed Mar 10, 2021 8:55 pm

Hi Paddy, i got my green card (I'm Irish but worked all my working life in the UK) Oct 6th last year and wife TIE 25th October

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Re: UK Rental Income, tax query.

Postby markwilding » Wed Mar 10, 2021 10:36 pm

If, as we do, use an agency to manage the rental, they will normally hold back the the UK taxes due at source. However, they will ask you to fill out a form to exempt you from this. The UK tax office will then inform the Spanish that tax is due here

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Re: UK Rental Income, tax query.

Postby Paddy Pumpkin » Wed Mar 10, 2021 11:11 pm

OK so you definitely have scope to retain UK residency for 2020

This is the part from the Double taxation agreement between Spain and the UK (the Spain /Ireland agreement is identical in this area). This governs what happens if you are deemed to be tax resident in both UK and Spain at the same time.

'he shall be deemed to be a resident of the State in which he has a permanent home
available to him; if he has a permanent home available to him in both States, he
shall be deemed to be a resident of the State with which his personal and economic
relations are closer (centre of vital interests)'

So in your case the UK you can still retain UK tax residency even though you have Spanish residency. I am making the presumption that the only connection you have to Spain is that you own a property here and have residency.

So you still have scope to carry out transactions as a UK tax resident. So what I would do is find a financial advisor who covers UK and Spain and arrange a meeting or phone chat with them. Tell them everything and ask for their personalised advice.


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