Spanish piling tax on holiday homes

FALLING European currencies make buying a property on the Continent more attractive, but Britons should be aware of tax regulations introduced in Spain over the past two years which could result in hefty bills for many holiday homeowners,writes Maria Scott.

Keith Baker, a solicitor with Croft Baker, a London practice that specialises in advising owners of property in Spain and France, believes many aspects of the regulations are draconian.

Mr Baker has written to the international division of the Inland Revenue, asking it to take the issue up with the Spanish authorities. He believes there is a case for a review of the tax treaty between Britain and Spain.

Owners of holiday homes in Spain who do not live there permanently now face taxes on rental income even if the property is not actually rented out, Mr Baker explained. The charge is raised on deemed income. This is levied at 25 per cent a year on 2 per cent of the value of the property.

There is also a new system for collecting capital gains tax on property profits. On a sale, 10 per cent of the price of a property must be deposited with the local tax office. If the seller of the property has made no gain - not unusual in the recession-hit Spanish holiday home market - they can reclaim the money. Mr Baker said that this can take many months and no interest is payable. Another new requirement of the Spanish authorities is that non- resident homeowners appoint a representative in Spain to pay their taxes. They must be paid for their services, which can initally cost pounds 200 and then pounds 250 a year thereafter.