COVID-19 and rental income
7 jul 2020
Owners of properties in Spain that do not qualify as permanent home must impute an income, a benefit in kind, and pay taxes on that imputed income.
For a non-resident, the house in Spain is by definition a holiday property thus the owner has to impute said income for the use of the house. This income is based on the cadastral value of the property, a value assessed by the tax authorities for tax purposes.
Those who rent their properties out must pay taxes on the real income made out from the rentals, in particular on the net income (deducting some expenses) for residents in Spain and in the EU, or on the gross income (without the possibility of deducting expenses) for residents out of EU. The imputed income rule applies to the days the house was not rented and, subsequently, it was at the disposal of the owner (theoretically).
The imputed income is not applicable when the house is not available for living, so the question arises from the fact that during the lockdown owners have not been able to use the house and if this will affect to the imputed income prorated for those days.
The answer is no. The Government has told that Spain will not apply any tax exemption on this subject, first because the house is habitable so it does not break the rule for the benefit in kind and, secondly, because the taxpayers affected are not within a vulnerable collective.
The legal arguments for the tax exemption are contradictory. On one side, it is difficult to put the inability to use the house during the state of alarm in equal footing to urbanistic reasons. On another side, the inability to use the house during a lockdown should be taken into account in the same way that the inability is accepted for spouses that cannot use their holiday house because of a divorce procedure, or when a house is illegally occupied and it has been denounced.
However, the cost of a legal procedure to defend the tax exemption will normally exceed the amount of the claimed tax exemption for a standard holiday home although this will depend on each case.
Defending that the days within the state of alarm should not count for the benefit in kind requires legal and individual advice that JC&A Abogados can provide.