BRITISH and American property owners letting out homes in Andalucia and across Spain can finally breathe a sigh of relief.
A landmark court ruling means non-EU landlords can now claim property-related expenses and access the lower 19% tax rate previously reserved only for European Union citizens.
To understand exactly how much money this will save you, let us look at a practical example.
Suppose you have a German neighbour who we will call ‘Horst’.
You and Horst both live in a picturesque white village near Malaga and you are both letting out flats.
When you moved here ten years ago, you each bought an apartment in a block called ‘Europa’ with the idea of largely living off the rental income.
Now let us suppose that recent rainstorms have severely damaged the building and water is coming in through the roof.
Together with the president of the community, you and Horst find a builder to fix the damage for an initial estimate of €7,000.
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You and Horst are both on the hook for €1,500 each.
He tells you: “Not a problem, I will just claim it against my Spanish taxes.”
Until this recent legal victory, you would not have been able to do the same.
Because Horst is a citizen of the EU and you are not, the system was entirely skewed in his favour.
You may have even been warned by your accountant that you were paying a punishing property tax rate of 24% on your flat, whereas Horst was paying just 19%.
However, the Spanish courts have now firmly ruled that this situation discriminates against non-EU landlords.
The catalyst was an American expat living in Barcelona who brought a legal case before Spain’s Central Economic-Administrative Tribunal (TEAC).
The judges struck down the differential between EU landlords and the rest of us, officially labelling it as ‘discrimination’.
The ruling hinges on a treaty called the ‘Functioning of the European Union’.
Under Article 63 of this treaty, money must be free to move around member states without unfair hindrance.
The tax office has now been told in no uncertain terms that denying deductions to non-EU residents violates this fundamental rule of the free movement of capital.
This legal precedent also sends a powerful warning shot to the government in Madrid.
Prime Minister Pedro Sanchez has recently been floating the idea of a 100% tax on any property purchased by non-EU residents.
Thanks to this new ruling, the courts are signalling to Sanchez that his aggressive tax ideas are essentially a dead letter.
EU law simply will not allow member states to punish residents merely because they do not happen to hold a Spanish or German passport.
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