Based on our experience as a tax advisory firm specialising in non-residents, we have observed a clearly discriminatory situation affecting property owners who rent out real estate in Spain. Whether they are foreign nationals or Spanish expatriates, many are paying more tax than they should simply because they are not residents of an EU country.
The Spanish Non-Resident Income Tax (IRNR) applies different treatment depending on the taxpayer’s country of residence:
- Residents in the European Union (EU) or the European Economic Area (EEA) can deduct expenses related to their rental properties (mortgage interest, property tax [IBI], community fees, repairs, insurance, etc.) and are taxed at 19% on their net rental income.
- Non-EU residents (for example, the United Kingdom post-Brexit, the United States, Andorra, and various Latin American countries) are taxed at 24% on gross rental income, without the ability to deduct any expenses.
This regime results in disproportionate taxation and may contravene the principle of free movement of capital as recognised in Article 63 of the Treaty on the Functioning of the European Union.
Since Brexit, UK residents have been subject to this less favourable regime. This change affects both British nationals and Spanish citizens residing in the UK, who, from 2021 onwards, have been fiscally disadvantaged compared to the pre-Brexit period.
At present, several legal proceedings are underway in which the revision of IRNR self-assessments is being sought. The main claims include:
- The application of deductible expenses, as if the taxpayers were EU residents.
- The application of the reduced tax rate of 19%.
- The application of the 60% reduction on net rental income (in force until 2023), or the 50–90% reduction applicable from 2024, in line with the treatment given to Spanish residents under the Personal Income Tax (IRPF).
In the absence of definitive judicial rulings, it is advisable to review IRNR self-assessments filed over the past few years. The deadline for requesting amendments and refunds of undue tax payments is 4 years, and any future favourable ruling will not allow the recovery of amounts relating to periods that have already become time-barred.
Each case should be analysed individually, comparing the actual tax paid with the amount that would have been due under a non-discriminatory tax regime. Based on the result, it may be advisable to request a rectification before the right to do so expires.
In some countries with a double taxation agreement with Spain, such as the United Kingdom, IRNR paid in Spain may have been offset against tax liabilities in the country of residence. However, this does not prevent a refund claim being made in Spain if it can be shown that domestic Spanish legislation breaches European law.
This issue may affect a large number of non-resident taxpayers. It is therefore essential to remain informed of any relevant judicial developments and, where appropriate, to act within the legal timeframe in order to preserve the right to a refund.
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