Is renting your house as a holiday let still a viable option?
Part one – how and when things changed.
Many owners of property in Spain have rented out their properties for years as a way of funding the purchase, ourselves included. But recent changes in the law regarding rentals means some are now questioning if it is still worth it. This blog relates to property in the Valencian Communidad (the provinces of Castellón, Valencia and Alicante), but nearly all of Spain’s regions require holiday lets to be registered now.
The first thought for me when compulsory registration was introduced was that not a lot was going to change. We were already legally compliant in that we declared our rental income in Spain and paid our tax (after a few allowable deductions), plus declared our rental income on our UK tax return, (we are UK residents), and as we had paid tax in Spain we rarely needed to pay tax on the rental income in the UK as well (thanks to the UK/Spain dual taxation arrangements). However, it turns out that a huge number of owners were NOT declaring their income in Spain, and maybe some were not declaring it in their home country either! So for some there was a very rude awakening with a marked reduction in rental income when they had to start paying 19% of their rentals in Spanish tax. And some have been hit with very large fines for backdated undeclared rental income too.
We registered as a holiday-let with the authorities while it was still a voluntary process, knowing it was just a matter of time before compulsory registration would be introduced in the Valencian Communidad, and the law finally changed in 2015. There was a lot of publicity about it in the English print press in Spain, on forums, in solicitors’ newsletters, on the advertising sites and various other sources. And yet still owners didn’t bother. Eventually the authorities had enough and declared that anyone advertising an unregistered let after 1st June 2018 would be heavily fined, and that included the on-line websites which carry thousands of ads, paid for by owners, that are used by those booking self-catering holidays.
At the end of May 2018 chaos ensued. More than one major advertising site took all their Valencian Communidad properties off their site, only reinstating the properties once the checking of the registration number had been completed. For us this was particularly annoying as they had had over 3 years in which to run that check, our number was already clearly entered in the property details. For other owners this was, amazingly, the first they had realised that they needed a registration number!
I won’t go into details of how to obtain a registration number here, that is covered separately, but suffice to say a system that originally was fast and efficient has become overwhelmed during the course of 2018, and I’m reliably informed that the process is now so back-logged with applications that they are taking a minimum of three months. Bearing in mind that officialdom in Spain virtually shuts down for August, I can’t see that back-logged being cleared quickly. And that is just step one!
So, now there are owners who have decisions to make: do they register and risk drawing attention to their past illegal activity and undeclared income; do they stop renting out and lose the income; do they continue to illegally let the property and hope they don’t get caught (they will!). What a dilemma! They say ‘honesty pays’ – well it hasn’t up to now as we were worse off for being honest and declaring the income in Spain, but right now I am glad we did!
Is renting your house as a holiday let still a viable option?
Part two – So what is a holiday-let?
The very first question requiring an answer is what constitutes a ‘holiday let’? Well each of the 17 autonomous regions in Spain set their own laws regarding this, so it is not necessarily as straightforward a question as it may at first seem! There may even be additional local laws that also need to be considered. So again, my comments relate to Valencian Communidad (and more precisely to the Alicante region within that). But all agree that anyone receiving payment in exchange for use of their property for a short-term period needs a licence. Even if only letting to family and friends.
You must furnish guests with details of the community rules, display an evacuation plan, provide a list of emergency telephone numbers and tourist information. And there is a list of equipment that must be supplied. All that is basic, and we were compliant anyway.
However, there are rules about what properties can obtain a licence. For all Standard properties there must be heating in all rooms, wall power points in all rooms, a fuse box (relating solely to that property). For the Primera (mid-range) properties you additionally need parking, air conditioning, a pool or be front-line to a beach and have a security box. Finally, if you have a Superior property then you need to add internet and a garden (can be communal). It is highly likely that some, if not most, of these will eventually also be required in Standard properties too.
But it doesn’t end there either. Next comes the size of the rooms! In a ‘Standard’ property the master bedroom must be at least 10m2, other double/twin rooms at least 8m2 and a single room at least 6m2. This allows for a minimum of 3.5m2 per person sleeping in the room. Bedrooms must have use of a wardrobe. If you have squeezed a shower, loo and wash basin into a cupboard, it doesn’t qualify as a bathroom unless it is at least 4.5m2; a living room must be at least 14m2 and kitchen 5m2. The rooms need to be larger for Primera and larger still for Superior. The only exception is for a studio apartment which must be at least 24m2 and include a separate but private bathroom.
All properties must be legal and have a Habitation Certificate (unless exempt due to age). They also need an ECP (energy certificate). But for some there are complications because some owners have made changes to their properties without the correct planning permissions. For instance, there is a design of house I know that lends itself to partitioning off a section of the lounge to create a ‘third bedroom’, thereby increasing the price you can charge renters, but if your house is listed at the land registry as having two bedrooms you cannot register it for rental purposes as having three. Aside from the room sizes for a rental licence as above, there are minimum specifications for what legally constitutes a bedroom including ceiling height and window size. This also rules out some converted ‘underbuilds’ (basements) with low ceilings and very small windows, especially those conversions that have never been granted permissions and not entered onto the property deeds as they don’t even officially exist.
I am aware of an apartment that is close to my house that is on the forth (top) floor that has been previously let out for holiday use, but as there is no lift it won’t qualify for a licence. Currently the rule in Valencia is up to a maximum level of three floors unless there is a lift. I am sure there are other complications too of which I am not aware. So, the answer to initial question of what constitutes a holiday-let is much more than just a property/part of a property rented out for holidays.
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