Income Tax due on Spanish Investment property

W

Warren

Registered User
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Hi guys,

I am considering buying a property in Spain and intend getting some professional tax & legal advice but I was wondering if anyone could confirm my own understanding of the tax issues involved before I go and do this.

I have estimated that the rent would be around 6000 p.a. based on rates per week, vacancy periods etc. As far as I understand I have to pay Spanish income tax at a flat rate of 25% on this gross figure (there are no allowable deductions). So my Spanish Income tax payable will be 1500 euro.

I will also have to declare this income to Irish revenue and I will pay tax at 42%. My mortgage interest bil will be approx. 4000 p.a. and I will have other deductible expenses (management charges , insurance etc) of 1200 p.a. So I calculate the taxable income to be 800 euro (6000-4000-1200). 42% of 800 is 336 euro. However based on my understanding of double taxation agreements I will not owe anything to the Irish revenue as the amount I have paid to Spainish revenue is greater than 336.

Can amyone confirm if my calculations and assumptions are correct?

Cheers,
Warren
 
I didn't think mortgage interest was allowed as an expense against foreign property. (non-expert, don't shoot me down)
 
Howitzer said:
I didn't think mortgage interest was allowed as an expense against foreign property. (non-expert, don't shoot me down)
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Howitzer,

I'm just loading the gun now!!

Yes mortgage interest on a mortgage for a foreign investment property can be offset against the foreign rental income. Check out [broken link removed] on revenue.ie

[Edited by to include link]
 
DonKing said:
Howitzer,

I'm just loading the gun now!!

I'll get in line!!
Is there mortgage relief on foreign holiday home? If not would it be better to let it out for a few weeks of the year?
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Hi,

Im also currently looking into buying a Spanish property. The property has a guaranteed rental for a number of years. When I asked the estate agent about my income tax obligations he told me that the management company will keep 500 p.a. of the guaranteed rent which will be paid to Spanish revenue. The Spanish revenue will then issue me with a certificate which I can use as a tax credit here in Ireland.

This doesnt seem to tally with whats posted here. Does this sound like an incorrect explanation by the estate agent?

ruairi
 
The 'tenant' witholds the tax and pays it to the relevant authority. Get a receipt from the 'tenant' as you will need ot as proof when doing your Irish return.
 
My understanding is that the spanish tax authorities take a percentage of the gross rent per annum. I think where the property is owned by foreigners the tax is 20% (I could be wrong). You then get a receipt from the tax authorities.
You then have to make a tax return to Irish revenue. Calculate the tax due to irish revenue after making the necessary deductions from rental income. You then use the credit from the spanish authrities to reduce the tax due to the irish revenue.
 
It would depend on whether you were using a management company or not and who the rent was payable to? Wouldn't it?
 
It would depend on whether you were using a management company or not and who the rent was payable to? Wouldn't it
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No. You have a legal requirement to make sure your tax affairs are in order according to the laws of each country. For Irish revenue you need to get details of rent received and expenses from the management company. You then have to get details of the interest paid on the mortgage to get the property and do a computation for irish revenue. I doubt it if the management company in spain is aware of what is required under irish law. You wil also need the paperwork to back up the claim in case you are audited by irish revenue.

Spanish Law: 20% (or whatever the figure is) of gross rental income
Irish Law: Rental Income from foreign properties less deductible expenses @ marginal rate of tax.
Double tax agreement - allowes you to offset the tax paid in foreign country in this case spain against the tax due in ireland.
 
liteweight said:
Is there mortgage relief on foreign holiday home? If not would it be better to let it out for a few weeks of the year?
Click to expand...

In Ireland you only get mortage interest relief for the mortgage used to buy or improve(not 100% sure on this bit) your principle private residence.

You cannot get mortgage interest relief for a mortgage used to buy a holiday home or investment property(home or abroad). You can however offset the investment property mortgage interest against any rental income you may receive from a holiday home/investment property(home or abroad) when calculating your taxable rental profit.

I'm not a tax professional by the way.

If you rented the property out for a short period ie (small annual rental income) then you would probably have to pay no tax in Ireland. You would of course have to check what tax you need to pay in the foreign country.

Personally I would imagine it wouldn't be worth the inconvenience and risk if it was only for a few weeks and the rental income was not significant.
 
DonKing said:
If you rented the property out for a short period ie (small annual rental income) then you would probably have to pay no tax in Ireland. You would of course have to check what tax you need to pay in the foreign country.

Personally I would imagine it wouldn't be worth the inconvenience and risk if it was only for a few weeks and the rental income was not significant.
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Think I might be taking a simplistic approach to this. Imagined that if I owned an investment property in Ireland, where rent exceeded mortgage interest relief, thereby giving rise to income tax at marginal rate, I could add in mortgage interest on foreign property as long as it was rented and bring down the tax bill. Assumed all rents and reliefs would be added together.
 
liteweight said:
Think I might be taking a simplistic approach to this. Imagined that if I owned an investment property in Ireland, where rent exceeded mortgage interest relief, thereby giving rise to income tax at marginal rate, I could add in mortgage interest on foreign property as long as it was rented and bring down the tax bill. Assumed all rents and reliefs would be added together.
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Lighweight, I think it might be easier if you drop the term "interest relief" when talking about investment properties.

Irish Revenue allow you to treat Investment mortgage interest as an expense, which you can deduct from your rental income(as well as your other expense and capital allowances) when calculating your rental profit which will be taxed at your marginal rate (+2% health levy)

If you have a number of Investment properties in Ireland you can offset loss's on some properties against profits on other properties to reduce your tax bill.

You can do the same with froeign properties (Irish Revenue anyhow, you need to check what is possible in foreign country)

Unfortunately revenue treat foreign rental Income and Irish rental Income as different types(cases) of Income and do not allow you to offset foreign losses agiast Irish rental profits.

So unfortunately no you can't do what you suggested above.
 
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