UK rental Income- Depreciation deduction

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Paddy Pumpkin
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UK rental Income- Depreciation deduction

Postby Paddy Pumpkin » Wed Jan 09, 2019 3:40 pm

I have UK rental income and have a query about how it is taxed in Spain (ignore all elements of UK tax paid etc as the question relates solely to Spain)

I am allowed to deduct 3% depreciation of the property purchase price (excluding land value) as an expense. How do I calculate the amount that was the land value, especially since it is an apartment.

Let me give an example

Apartment Cost 100k to buy 20 years ago. How do I ascertain what portion of that 100k was the building and what part was the land?

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Wicksey
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Re: UK rental Income- Depreciation deduction

Postby Wicksey » Wed Jan 09, 2019 5:17 pm

If it's leasehold, would there be a land element in the purchase price? The freeholder will own the land and you pay ground rent for that surely?

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Re: UK rental Income- Depreciation deduction

Postby Paddy Pumpkin » Thu Jan 10, 2019 1:18 am

You have thrown up something I hadn't thought about. Yes the apartment is leasehold and I pay a minimal ground rent every year. I looked at the deeds and there is no price to buyout the freehold or any mention of the land value. The price to buy out the lease is about 15k now as the lease still has about 100 years left on it.

However I still would have paid an element of value for the right to use the land when I purchased the apartment.

what does anyone else do to figure out the depreciation they can charge as an expense?

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Wicksey
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Re: UK rental Income- Depreciation deduction

Postby Wicksey » Fri Jan 11, 2019 11:36 am

I'm not sure what my gestoria does with mine. Ours is a freehold house but she's never asked about the land value. I think there is a deduction for wear and tear .... not sure! I do my own accounts and give her all the figures but can't remember if she ever discussed the price we paid for the house but it was over 6 years ago now. I won't see her until May for her to do the returns so can't help much more I'm afraid.

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Re: UK rental Income- Depreciation deduction

Postby Paddy Pumpkin » Fri Jan 11, 2019 1:30 pm

She should be depreciating the cost of the property. So you may be paying too much tax in Spain

https://www.blevinsfranks.com/news/arti ... allowances

Rental income

For Spanish residents, a reduction of 60% is generally available against the net rental income before tax is payable. This applies to all lettings where the property rented will be used as a permanent home (i.e. main home) – ‘Arrendamiento de bienes inmuebles destinados a vivienda’. It is applicable to lettings income from outside Spain, but not to short-term holiday lets.

The net rental income is the amount due after deducting usual day-to-day running expenses for the period in question (e.g. managing agents’ fees, home insurance, mortgage interest, repairs and maintenance etc.) and depreciation of 3% per year of the cost of the property (excluding the land value).

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Wicksey
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Re: UK rental Income- Depreciation deduction

Postby Wicksey » Fri Jan 11, 2019 4:05 pm

We don't earn enough to pay tax here. She is applying the 60% discount and I will check about the additional 3%. She has mentioned something, I'm sure, that she referred to as 'wear and tear' so maybe that's it. It is unlikely we'll earn enough to pay tax for some years yet but I will ask her!

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Re: UK rental Income- Depreciation deduction

Postby Paddy Pumpkin » Fri Jan 11, 2019 5:50 pm

Well if you are not paying tax...well then no need to try to reduce the bill ;-) !

The depreciation reduction can be quite sizeable. If your house costs say 200k to rebuild then you can be reducing your taxable income by 6k (bfeore it is reduced further by 60%)...definitely worth digging for

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Wicksey
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Re: UK rental Income- Depreciation deduction

Postby Wicksey » Sat Jan 12, 2019 11:15 am

Paddy Pumpkin wrote:Well if you are not paying tax...well then no need to try to reduce the bill ;-) !
It's a case of making sure we keep it that way, so it's worth making sure that all deductions are included :thumbup:

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Re: UK rental Income- Depreciation deduction

Postby cerro » Thu May 14, 2020 3:31 pm

I wish to claim the 3% annual depreciation against rental profit from two flats purchased over 20 years ago in the UK [they were not new] in order to complete my tax returns as a Spanish resident. The 3% depreciation is based on the value of the buildings excluding the value of the land. I have no information on the land values of the flats at the time of purchase, one of which is leasehold and the other freehold, but the estate agent Savills produced a research article in 2015, in which they claimed land value for a house is about 1/3 of the house price. Consequently for my flats, which are in 3-story blocks, I have estimated the land value to be 1/9 of the purchase price. Can anyone comment on the acceptability of this approach, or suggest an alternative way of finding out the land value for a flat ?

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Re: UK rental Income- Depreciation deduction

Postby markwilding » Fri May 15, 2020 4:47 pm

I my case I cannot claim against any costs. I get an abritory allowance around 22 per cent and even though I produce invoices against costs, It doesn't matter what they are as I always pay tax on 78%. From what I have heard, In other aparts of Spain you pay on a lower amount.

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Re: UK rental Income- Depreciation deduction

Postby Paddy Pumpkin » Fri Oct 23, 2020 4:28 pm

cerro wrote:
Thu May 14, 2020 3:31 pm
I wish to claim the 3% annual depreciation against rental profit from two flats purchased over 20 years ago in the UK [they were not new] in order to complete my tax returns as a Spanish resident. The 3% depreciation is based on the value of the buildings excluding the value of the land. I have no information on the land values of the flats at the time of purchase, one of which is leasehold and the other freehold, but the estate agent Savills produced a research article in 2015, in which they claimed land value for a house is about 1/3 of the house price. Consequently for my flats, which are in 3-story blocks, I have estimated the land value to be 1/9 of the purchase price. Can anyone comment on the acceptability of this approach, or suggest an alternative way of finding out the land value for a flat ?
I still don't have an unequivocal answer but maybe one to think about is the approach I used. I looked at the buildings insurance and the re build cost included in the insurance. So say for example you had a 1 million pound property in Knightsbridge and it got demolished tomorrow in an accident. To rebuild was 300k...therefore the land value was 700k. I used the figures from my insurance policy the year I purchased the property to work out what % of my purchase cost was land.

I will only truly know if this is acceptable if I get audited by Hacienda. It seems as in many cases in Spanish taxlaw there is no allowance or understanding that assets can be located abroad.


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