According to these experts only 1 in 4 landlords declare their rents! And the tenants are in on it as they are the ones that are supposed to withhold the tax and pay it to hacienda!
So why do so many landlords fail to declare their earnings from rentals? Well in this persons opinion it is quite simple. Most people will only pay their taxes when they thinks that the taxes are fair or when they know that they cannot get away with not paying them. Yes I realise this might be a bit cynical, but this does not make it any less true.

At this moment in time if you have a property to rent, after costs (but not including your mortgage) you as a Spanish resident have to pay 15% to hacienda. This strikes many people as a lot of money. But if you are a non-resident this rises to 25% which is just excessive!

Let’s give examples:
We have 2 couples who are both renting their properties at 600€ a month

Mr & Ms Resident                      Mr & Ms Non-Resident
Rent: 600€/month                   Rent: 600€/month
Costs: 150€/month*                Costs: 150€/month*
Gross: 450€                                 Gross: 450€
15%: 67.50€                                25%: 112.50€
Net: 382.50€                               Net: 337.50€

*Please note income-generating expenses are not including in the Costs.

Ok so far? So now lets imagine Mr & Ms Resident have rented their property for 11-months and have earned 4207.50€. With luck the property is returned to them in pristine condition, they return the 1 month deposit and start looking for their next tenant. But what happens if there are damages? Well it will get taken out of the deposit and the remainder will be returned. What happens if there damages are serious? Broken dishwasher or damaged sofa for example? That deposit is not going to go far. So that’s going to eat into the perceived profits. What if the market for the type of property you have is getting more competitive and you want to renovate your property? Say you want to put in a new kitchen or central heating or air conditioning? These costs cannot be deducted! So that 4207.50€ could quite easily disappear by installing a new kitchen.

Now what will happen if the landlords also have a mortgage? Let’s be nice and say 300€ has to be paid to the bank monthly. That 4207.50€ suddenly drops to 907€ after costs. If we take the 15% out of the 4207€ and then the mortgage we are left with 276€ profit. Not a particularly impressive figure is it?

Is it any surprise so many people do not declare rentals? What the government should do is simple. First and foremost treat rental properties for what they are, a business. Allow the owners to offset all their costs that can be shown to be business related. Then reduce the % that needs to be paid to hacienda. With these 2 options there should be an increase in the amount of declared property rentals. After a year implement some sort of certificate that must be obtained prior to renting. With a penalty to the owner and tenant if no documentation can be presented on inspection. Of course for there to be inspections, there needs to be inspectors. In the current job climate it should not be difficult to hire a large contingent of staff to go travelling around asking in agencies and phoning for rent signs. If on demand the paperwork/certificate cannot be presented they get fined. That should clear up the situation quite quickly. Of course the certificates should be easy to obtain with minimal hassle for the landlords.

Regards
Andrew Bellés

Many buyers though are not familiar with some of the potential pitfalls of renting out their property. Although the laws vary slightly depending on where you are in Spain, below you will find a general guide to rentals on the Costa del Sol.

Rental

First and foremost there are not limitations on how much rent a landlord can ask. Of course someone has to be willing to pay for you property on the Costa. But there is no legal reason to stop you charging what the market will pay.

Once the landlord and tenant have come to an agreement, by law the landlord cannot ask for more than 1 month security deposit, although this law is rarely enforced. Rental must be paid within the first 7 days of each month.

The landlord has the right to update the rent on a yearly basis for the first 5 years in accordance with the IPC (Consumer Price Index). Of course the tenet must be informed in writing.

After the first five years, the contract can be renewed at a new rent, but cannot be 20% higher than the current rent.

It is also worth noting, if the landlord makes improvements on the property the annual rent can also be increased (again no more than 20%). This annual increase is based on the legal interest rate, incremented by 3 points.

Deposits

As previously mentioned the landlord is only entitled to 1 month’s security deposit. This amount can not be increased during the first 5 years, regardless of increases based on the IPC.
Although in most cases the security deposit is held by the landlord, in many cases it is held by an independent third party. The deposit can, for example be held by the agency that rents the property, legal council or by the local housing department.

Landlord and tenant rights

When the property on the Costa del Sol is too be rented the landlord and tenant can write any duration into the contract, but it is worth noting, if the contract if for at least 12 months, the tenant has the right to annually extend for 5 years. Although in theory this is not valid if the landlord states in the contract that the dwelling will be recovered for personal residence on a given date. In most cases a landlord will limit the length of the contract to 11 months to prevent the tenant extending the contract. Although if on completion of the 11 month a new contract is drawn up with the same tenant, it can be viewed legally as a 12 month contract.

The tenant is entitled to terminate the contract before the five years period, by giving a minimum of thirty days notice.

If neither the landlord nor the tenant give notice to terminate the contract one month prior to its end, the contract is automatically renewed by yearly terms up to a maximum of three years.

If both the landlord and tenant agree to a contract for over a 5 year period for the Costa del Sol property, the tenant has the right to end the agree, but most give a minimum of 2 months notice. This is only applicable after the first 5 years of tenancy.

In most cases on the Costa del Sol, most rental agreements ‘holiday rentals’. These are contracts that are under 12 months do not suffer the same legislation as the previous mentioned agreement. The Tenant does not have the right to automatically extend the end of the current contract.

A landlord can evict a tenant and regain his Costa del Sol property on several grounds. These include failure to pay the rent, physical damage, immoral activities within the property and, subletting without permission. In any of these cases, a court order must obtain against the tenant.

I hope this information is of some assistance.

Regards
Andrew Belles