How to declare holiday let income and expenses
Declaring holiday let income starts with organising revenue, expenses and periods of use. The payment received may already have commissions deducted, so keep the booking statement and related invoices.
Many people know that they have to pay tax as the owner of a holiday let (of course), but fewer know what to include or deduct in their income tax return.
Preparing the paperwork helps you calculate your obligations correctly. This article outlines the checks to make; it does not provide a universal tax figure or replace an assessment of the taxpayer and the relevant tax year.
We focus on organising a rental operation so that its tax treatment can be reviewed. Obligations vary for residents, non-residents and companies, and regional or local taxes may also need to be checked separately.
How to prepare a holiday let tax return
To make this easier to follow, we will use a typical holiday letting example: someone who owns a second home and lets it during the high season (say, the 3 summer months).
It is still the same property, but the days it is rented out and the periods when it is available to the owner may receive different tax treatment. Identify each period without counting the property twice.
The important thing is to count the exact number of days you let your home as holiday accommodation. This will help you determine the expenses that can be deducted, which we discuss below.
Income, expenses and periods of use
It is not correct to say that every holiday let pays more tax than a residential rental. The comparison depends on the return, the circumstances and the applicable rules; gross income must not be confused with the tax liability either.
For Spanish personal income tax (IRPF), the Spanish Tax Agency (AEAT) states that holiday letting generally produces income from immovable property. It may constitute an economic activity because of the services provided or the staffing requirements. Cleaning and linen changes only between stays are not, in themselves, hotel services.
Remember to record the days the property was rented out. We will need these later.
How to check income and expenses using an example
The Spanish tax category rendimientos del capital inmobiliario, or income from immovable property, taxes the net return, rather than gross receipts.
Classify each expense and check its supporting evidence, connection to the letting, allocation to the relevant period and applicable limits. Distinguish repairs from improvements, interest from capital repayments, and current expenditure from depreciation. Not every property-related payment is deductible in the same way.
This is where we need a calculator and our record of the days the property was used as a holiday let. Let us continue with the earlier example to make it easier to understand:
During the 3 summer months, our property generated €3,500. Over the course of the year, however, we paid the following:
-€200 in refuse collection charges.
-€300 in owners’ community charges.
-€500 for electricity.
-€250 for water.
-€700 to the property management company.
These amounts total €1,950, not €1,930. This illustrative list does not mean that the whole €1,950 can be deducted: you must identify what relates to the activity and to the period when the property was let.
Adding up invoices for the rental period is not interchangeable with dividing all expenses by four. A management commission attributable to specific bookings, for example, is assessed differently from an annual property expense. First classify the items, then apply the appropriate approach.
That is why we do not calculate a supposed taxable profit by automatically subtracting the entire list from the €3,500 of income. Prepare a table with the item, amount, supporting document, period and tax treatment so the calculation can be reviewed.
The final IRPF liability is not a fixed 19% of holiday let income. A withholding, where applicable, is a payment on account and should not be confused with the taxpayer’s final tax liability.
Are there reductions for income from immovable property?
Holiday letting does not automatically qualify for the reductions available for leases used as a tenant’s home. Check the rules for the relevant year and type of rental; do not apply a percentage from a different rental category.
The result must be included and calculated under the tax rules and circumstances of the person filing. An example of income and expenses does not, on its own, establish the amount payable.
What happens when my home is not rented out?
During periods without a tenant, imputed property income may apply, depending on the use and applicable requirements. Record rental days, personal use and other situations so they can be reviewed correctly.
For that second situation, bear this in mind:
The imputation percentage does not depend simply on whether the home is new. Check the cadastral value and its reassessment status, together with the rules for the tax year. The imputed amount is also not the same as a tax bill for that amount.
Before preparing an estimate, gather the IBI property tax bill and the property’s usage calendar. Applying 2% and deducting one quarter of the year without checking these details can produce an incorrect calculation.
Use the AEAT tools and guidance for the relevant year, and check the draft return: the presence of a figure does not prove that its classification or amount is correct. The old Programa PADRE is not the reference tool for preparing a current return.
What if I do not declare my income?
Omitting income can lead to a tax adjustment and, depending on the circumstances, surcharges, interest or penalties. There is no single fine that applies in every case. If you find an error, check how to correct it before submitting further information.
Compare your records with the information supplied by booking platforms. Information reported by third parties does not replace your obligation to declare income correctly.
Companies such as Booking or Expedia have been required to provide their clients’ tax details, meaning those of property owners, to help prevent tax evasion.
It is therefore advisable to keep everything up to date with the Spanish Tax Agency and with the legislation of your autonomous community.
VAT and IAE: separate checks
The provision of hotel-type services is relevant to VAT. Do not assume the treatment is the same simply because a property is advertised on a platform. The AEAT provides specific guidance for tourist apartments.
For Spanish business activities tax (IAE), the AEAT places the tourist accommodation described in its guide in group 685, with or without hotel services. Classification, tax registration obligations and exemption from paying the tax are separate issues; they must be checked according to who operates the activity.
Documents worth gathering
- A record of bookings, cancellations, receipts and commissions across all channels.
- Invoices for services and expenses, identifying the period they cover.
- A calendar of property use and periods when it was not let.
- Purchase, building works and financing documents relevant to the calculation.
- Tax information from platforms and previous returns to check for possible differences.
