Legal and tax effects of renting a room in Spain: discover what only the top, expert property lawyer in Spain know about legal and tax effects of renting a room in spain
While much time has been spent here and in other publications discussing the legal aspects of renting a property in Spain, we often overlook an ever-more common situation whereby a property owner decides to rent out a room to a lodger.
Due to the ever increasing rental costs in Spain and the need for owners to supplement their income to meet their mortgage repayments, this is an increasingly popular option. So what are the legal considerations if you want to rent a room in your property in Spain? And what are the fiscal/tax implications?
The first important distinction to be made between renting an entire apartment and a room in your home is that the Ley de Arrendamientos Urbanos (LAU)does not apply but rather the Spanish Civil Code. The major ramifications of this are that the lodger has no right to extend the lease as is the case with tenants under the LAU, as modified by the recent Ley 4/2013 (Measures to Increase Flexibility and Develop the Rental Market).
Additionally, where a room is rented to a lodger, should the owner sell the property, the lease terminates upon the sale. A lease to a sitting-tenant on the other hand continues to exist unless the buyers were unaware of the existence of the lease. In a similar vein a lodger does not have the right to first refusal should the owner of the property put it up for sale.
Just as with standard leases, a rental contract for a lodger should identify the room in the property to be occupied by the lodger, the price and the duration of the lease. In addition any services that are to be provided to the lodger should be included in the lease such as use of the kitchen and any utilities like telephone and internet.
Rental income should be declared just as any other income. In fact it comes under the heading of -‘rendimientos de capital inmobiliario’. There are important deductions that can be made that drastically reduce or eliminate any tax payable on income of this type.
Firstly you may deduce any bills such as the mortgage interest payments as well as amortisation costs (at 3% of the property) as well as any charges such as IBI and rubbish collection. Also deductible are insurance costs and the costs of professional services such as an accountant to calculate tax liability. Finally any expenses involved in the refurbishment or repair of the property may be deducted from the taxable income.
Once the yearly expenses have been calculated and deducted from the rental income, you have reached the net tax payable but this is not the final result.
Should the lodger be between the ages of 18 and 30 and earns over 7,455€ per year, then 100% of the net income may be deducted.
If the lease was signed before 01/01/2011, and the lodger is aged between 18 and 35 and earns over 7,455€ per year then 100% of the net tax may be deducted.
In all other cases, 60% of the net tax payable will be deductible or 50% if the lease began before 01/01/2011
Please note that if you benefit from mortgage interest relief, this will be affected by the above- mentioned deductions and should be reduced in proportion to the amount of the property leased to any lodger(s).