Learn more about the consequences if you rent a property under the table in Spain.
The Spanish Tax Authorities are considering penalties of up to 150% of the undeclared amounts for those who commit this offence.
The income received from renting a property in Spain is taxed for personal income tax purposes as real estate capital. However, many people rent under the table – without a contract – to avoid paying the tax office. This is what happens if you do not declare rent in Spain.
Main risks of renting a property under the table in Spain
If you rent a property under the table, or in other words, cash in hand, please note that it is illegal and can lead to penalties of up to 150% of the undeclared amount. Here are some of the risks you face if you rent a property under the table:
Landlords risk losing their existing tax benefits
As a landlord, if you declare your rental income you are entitled to several tax benefits that you will lose if you do it under the table. They are:
- A deduction of up to 60% in personal income tax of the rental income received
- Deductions on property-related expenses such as repairs, taxes or home insurance
Conflict of interest between the landlord and tenant
Tenants may present their rent in their tax return so they can access certain tax benefits, which means they would need the landlord to declare it too. If this is the case, this can lead to several situations:
- The tenant, regardless of whether the landlord declares the rental income or not, presents the rent they pay in their tax return. If the landlord does not declare the rental income, this will alert the tax authorities, who may investigate the case and find that an offence is being committed
- The tenant files a formal complaint through the courts, which will result in the landlord having to declare the property, and paying the corresponding fines for not having already done so
- The tenant requests an inspection from the tax authorities, in the best-case scenario
The landlord will be liable to high fines
If the Tax Authorities find out that a property is being rented under the table, the landlord will have to pay back the full amount received for the rent and, in addition, pay a fine of up to 150% of all the rental income obtained.
The amount the landlord should pay in fines depends on the amount that was not declared:
- Less than €3,000: the landlord would have to return the money received for the rent plus a fine of 50% of that amount
- More than €3,000: the landlord will have to pay back the undeclared amount plus interest of between 50% and 100% depending on the amount
- When the undeclared income represents more than 50% of the base of the fine and fraudulent means have been used: proportional financial penalties of 100% to 150%, which will be adjusted according to the criteria of repeated commission of tax offences and economic damage to the tax authorities
No legal protection against non-payment of rent
If there is no rental contract, there is no evidence that the rent has not been paid, so the landlord will have no legal protection to be able to claim the owed rent.
Similarly, if the tenant causes damage to the house or fails to pay the bills (which will be in the landlord’s name), the tenant cannot be made to pay or bear the costs.
How do the tax authorities know about undeclared rent in Spain?
The Spanish Land Register shows whether a rental contract is registered. In addition, if the tenant declares the rent and the landlord does not, this will notify the tax authorities, who will open a sanctioning file. They can also find such information through banks, utility companies, internet advertisements, etc.