UK homeowners in Spain could pay less tax on rental income as Supreme Court reviews rules

British homeowners who rent properties in Spain may face lower tax liabilities if the Spanish Supreme Court rules in favor of allowing non-EU residents to deduct rental expenses. The court has agreed to review whether landlords residing outside the European Union should be taxed on gross rental income without deducting costs like repairs, maintenance, and insurance.

Currently, non-EU residents, including UK citizens, pay a 24% tax rate on their rental income, while EU/EEA residents pay 19%. If the Supreme Court rules in favor of allowing deductions, a hypothetical UK-resident landlord earning €12,000 in rent and paying €4,000 in eligible expenses could save up to €960 annually. However, this is not a guaranteed saving and would depend on the specific expenses involved and applicable tax rules.

The case involves a property owner in the United States who rented a flat in Barcelona, and Spain's tax authorities initially refused deductions for rental expenses. After a ruling in favor of the owner, Spain's State Legal Service appealed, leading to the Supreme Court's decision to review the legal question. The outcome could impact landlords from Britain, the United States, and other non-EU countries, but the final legal position remains uncertain until the court delivers its ruling.