One of the points put forward by resort sales teams is the prospect of generating rental income at those times you choose not to use your timeshare. Although some developers don’t allow this, many do. If you own a timeshare in Spain you may be interested to know that there are tax implications.
Spanish tax law in relation to rental income was tightened, although primarily aimed at landlords; timeshare was drawn into the net. In basic terms there is no need to worry if you own two weeks or less. As a general rule for non EU residents, rental income is taxed at 24%, but in the case of UK residents ONLY, this simply applies to those who own more than two weeks.
As many owners are residents in the UK, tax on rental income is regulated by paragraph IV of the Protocol Agreement between Spain and the UK, which states that no income may be attributed under timeshare contracts where the taxpayer owns two weeks or less in a calendar year.
This action doesn’t mean that UK owners have to engage with the Spanish tax authorities as the tax is in the form of a withholding tax. It is Spanish law that all rentals must be handled by an authorised sole letting agent who is responsible for withholding 24% of the rental income and paying this to the relevant authority tax authority. Rentals on a private basis contravene the law, so arranging a paid rental to say family or friends is prohibited.
In cases where developers control rentals, they will be the sole letting agent and handle the tax implications on behalf of the owner. This may be the very reason that some developers prohibit rentals because they have to bear the burden of both the extra administration and dealing with the tax authorities.
Simply put, owners of one or two weeks whose country of residence is the UK can receive rental income which is not subject to withholding tax and furthermore doesn’t need to be declared to the Spanish tax authorities. Owners of more than two weeks will be subject to 24 % withholding tax on rental income, regardless of the number of nights that the property is rented for.
TCA comment
It’s lucky for UK owners with two weeks or less ownership, due to the signed protocol, however for other non EU owners, no such luck; they will have to pay 24% on all rental income generated. For both EU and Spanish resident owners, the rate of tax is reduced to 19%.
If as a UK timeshare owner with more than two weeks ownership in Spain, it may be worth seeking legal advice if rental income figures in your equation. As this change took place some time ago, it allows the Spanish tax authority to go back for up to four years and demand back payment. Recently one such case came to our notice where the tax authority requires the sole agent to collect back taxes, needless to say this is being contested, and being Spain, the conclusion could be a long time coming.
For more information regarding this article or assistance in any other timeshare related issues please contact the TCA on 01908 881058 or email: info@TimeshareConsumerAssociation.org.uk