With the arrival of summer some legal doubts usually appear when buying a second residence to spend the vacations. And it is necessary to indicate this second residence in the income tax return and to know how it is taxed. There are many aspects to take into account when carrying out this process.
From Blegal we want to guide you to know the conditions and understand all the steps that have to be taken legally when purchasing a second residence. Let’s begin.
Let’s be clear: what is considered a second residence?
According to the Tax Agency, we call a second residence a property in which we do not live on a regular basis but which we own. There are, therefore, 2 types: the holiday home (you do not live in it permanently) and the investment product (it is a property that is rented or resold).
Make no mistake: although they are different, both types are considered second homes. Therefore, they must always be taxed. What will vary will be the conditions under which they will have to be taxed and included in the income tax return.
So… how does taxation vary?
This is the point that will have to be taken into account at the time of taxing our second residence in the income tax return: the taxation. This varies depending on whether the residence is used personally, if it is rented permanently, if it is a holiday home or if it is sold. The IRPF will be declared in a specific way depending on the use that is made of it.
In general, the second residence in the income tax return is taxed between 1.1% and 2%, depending on the cadastral value of the property. Other properties that are not the habitual residence and up to two parking spaces must also be taxed. In the income tax return it will be necessary to indicate the box ‘imputation of real estate income’ and to indicate how many houses are owned and their use in the section ‘real estate not assigned to economic activities’. These conditions are obligatory throughout Spain with the exception of the Basque Country and Navarre (where there is no imputation of real estate income outside the region).
It should be noted that these percentages do not apply if the residence is rented. In this case, it is declared as income from real estate capital. It will be taxed in the general taxable base, with economic activities or work income. It is possible to deduct expenses of financing or conservation of the property and non-state taxes and surcharges.
Now we will go on to explain the types of taxation that exist depending on the use that is made of the housing.
Taxation of the second home as a permanent rental property
In this case, the owners of a property decide to rent it on a permanent basis. The income obtained from the rental of the property is the real estate capital yield. It is taxed in the general taxable base, with the income from work, economic activities, income imputation. To these profits of the rent are subtracted the expenses that can generate having a house in property. Among them we can highlight the interests, the expenses of conservation and repair, the IBI, the community of owners, the insurances, the amortization, etc.
If the owners rent their property to a person who uses it as a permanent and principal residence, a reduction of 60% in the net yield can be applied. If a storage room or garage of that same second home is rented next to it, its yield is included in the yield obtained by this one.
On the other hand, if the garage or storage room is rented separately, the yield of real estate capital is determined as if it were another property rented independently. Therefore, the 60% reduction cannot be applied.
Taxation of the second home for temporary rental or as a tourist home
If the property is rented seasonally or to tourists, the profit obtained must be taxed as income from real estate capital, taking into account the income and the expenses necessary to obtain it.
Unlike the previous case, the 60% reduction cannot be applied to the positive net income obtained. The rent, when it is a tourist or temporary housing, is not intended to cover the permanent housing needs of the tenant, so it does not make sense to ask for this reduction.
If in the housing that is being offered as tourist or temporary rental, services of economic activities are provided, the obtained yield must be taxed as yields of economic activities. These must be included in the general taxable base of the tax.
Taxation of the second home for personal use
Having a second home for personal use, even if it is empty, implies an imputation of real estate income in the IRPF. This is an income created by the Treasury to pay for an empty home. The Treasury considers that the mere possession of a second residence, even if the owners do not generate any profit with it, generates the possibility of obtaining an economic benefit for it. Therefore, this ‘economic capacity’ must be taxed. The imputed income will be 2% of the cadastral value of the property (if this value has been revised in the last 10 years, it will be 1.1%).
Taxation of the second home in case of sale
When a property is sold, a capital gain or loss can be created. This is due to the difference between the transfer value of the property minus the expenses associated with this transaction and the acquisition value plus the expenses incurred in the purchase. The capital gain is taxed in the savings taxable base with tax rates between 19% and 23%.
It is necessary to mention that the houses that were bought before December 31, 1994 can apply the reducing coefficients to the proportional part of the gain obtained until January 20, 2006. This gain, therefore, could be exempt from taxation.
Taxation of the second home of non-residents
People who own property in Spain but are not residents of the country are not taxed through personal income tax, but rather with non-resident income tax (IRNR). Taxation will vary depending on whether the property has been rented, available to the owner or has been sold. In any case, the owner (both foreign and Spanish residing outside the country) must pay taxes for the properties acquired in Spain, since these will always be subject to taxation in Spain. It would not matter, in this case, if the dwelling is available for own use or rented. Residents outside the European Economic Area are taxed at a higher rate and without the possibility of deducting expenses.
Conclusions
As we have been able to observe, there are several types of second residence. Each of them is accompanied by legal conditions to be able to pay them. From Blegal we want to help you and give you the necessary information so that you know what is happening with your legal situation. You can contact us to request any type of information or ask any questions. If you want to know more, you can visit our blog and find out about all the current legal news.
For information on related topics, visit our page on Fiscal and taxation.
Photo by Tierra Mallorca on Unsplash
