Tax Savings for Your Spanish Holiday Home
Only 1% of Landlords know about this

Owning a furnished Spanish holiday home in has potential for tax savings.

Many property owners are eligible for tax benefits when it qualifies for furnished residential properties across the European Economic Area (EEA).

(Read Time: Approx. 6 minutes)

Topics Discussed:

• Identifying tax opportunities for furnished residential properties in the EEA.

• Understanding how to unlock and apply substantial tax savings.

Tax Savings Explored

Picture this: you’ve recently acquired a villa in Spain for £500,000. Such an investment could usher in a tax saving of up to £67,500, directly offsetting the rental income generated from your furnished holiday letting operation.

The advantage of this benefit is its lack of dependency on the purchase date—what matters is your current ownership status.

For those holding properties with a valuation of £1 million or upwards, the potential savings double, reaching £150,000.

The Foundation of Legitimate Tax Benefits

Rooted in the current UK tax framework, these tax allowances offer a path to enhancing tax efficiency, avoiding any risky “tax evasion” tactics.

The significant potential for tax savings lies in wait, but a vast majority of property owners remain in the dark about this opportunity.

Capital Allowances Explained

Capital Allowances apply to a portion of your property investment deemed eligible for tax relief—such as expenditures on heating, ventilation, swimming pools, kitchen fittings, and electrical installations—excluding the cost of the land and the structure itself.

It necessitates the expertise of a capital allowances specialist to dissect your purchase price, distinguishing between the parts that qualify for tax relief.

This tax concession, specifically tailored for furnished holiday lets within the EEA, requires a detailed valuation of the property’s eligible features.

Typically, no price breakdown is provided at the point of purchase, leaving significant portions of your investment unrecognised for tax relief purposes.

However, with a detailed analysis, as much as 35% of the property’s purchase price could qualify for these savings.

Read further into our previous piece on capital allowances here.

Pre-Qualification Checklist

It’s essential to determine if your property meets the criteria for these savings.

Here’s a simplified guide to check your eligibility:

• Adequately furnished property – Your property must be fully furnished to be considered a furnished holiday let. This means it should be equipped with all necessary furniture and appliances that guests would expect for a comfortable stay, such as beds, sofas, dining furniture, and kitchen appliances. The furnishings should support a ‘move-in ready’ experience for short-term tenants.

• Commercially let for more than 105 days annually – To qualify, the property must be available for commercial short-term rentals for over 105 days in a year. This criterion aims to differentiate genuine holiday lets from residential properties used occasionally for holiday rentals. The letting must be conducted with a profit motive, indicating the commercial nature of the activity.

• Available for commercial letting for at least 210 days per year – Aside from the actual letting days, your property should be available for rent for at least 210 days out of the year. This availability does not include any days you might use the property for personal use or when it’s occupied by friends and family at no cost. This ensures the property is primarily used as a holiday rental.

• Not let to the same person for over 31 days within this period – To maintain the status of a holiday let, any single let should not exceed 31 days to the same individual. This requirement prevents the property from being used as a long-term rental, adhering to the short-term, transient nature of holiday lettings. It encourages turnover and usage by a broader audience.

• Owned either personally or through a limited company – The ownership structure of the property can vary; it can be owned by an individual, jointly, or through a corporate entity such as a limited company. This flexibility allows for various investment strategies and tax planning opportunities, accommodating different types of investors.

• UK tax paid on the rental income generated – Owners must declare and pay UK tax on any income generated from the property, even if the property is located outside the UK but within the EEA. This ensures compliance with UK tax laws and acknowledges the global income reporting requirement for UK taxpayers.

European Economic Area (EEA) Countries

The tax benefits discussed apply to properties situated within the EEA, encompassing the following countries:

A Practical Example

Consider a scenario where a property is purchased for £500,000 by an individual in a higher tax bracket. This could lead to capital allowances of approximately £150,000, equating to total tax savings of £67,500 over time, given a 45% tax rate.

If the annual investment allowance applies, these savings could be realised in a single year, with any surplus carried forward.

Without the annual investment allowance, the first year could still see allowances of about £20,000, potentially halving the tax bill on taxable rental income of £40,000.

These allowances would gradually decrease on a declining balance basis until complete tax relief on the £150,000 of allowances is achieved.

Navigating Your Next Steps

If your furnished holiday let meets the criteria outlined above and you’ve been paying tax on its rental income, now is the time to act.

The opportunity to retrospectively claim these tax savings ensures that you’re leveraging every available benefit to its fullest extent.

In summary, owning a holiday home in the EEA offers a compelling blend of personal enjoyment and financial prudence.

With expert guidance and strategic tax planning, your European retreat can serve as both a personal sanctuary and a wise financial investment.

Seeking Expert Advice?

Exploring the tax-saving potential of your holiday home requires expertise and insight.

www.taxexpert.co.uk is here to guide you through the complexities, ensuring that your property investment is as rewarding financially as it is personally.

Seize the opportunity to enhance the value of your investment and secure your financial future with confidence.

Contact us today at 01772 788200 to find out more about how we can help, or WhatsApp us out-of-hours at 07787 010190.

Sending an e-mail is simple too, just fill out this short form and we’ll get back to you!

Kind regards,

Ilyas Patel