The Spanish tax authorities, Hacienda, have ramped up inspections on landlords, particularly those with vacant properties.
The aim is twofold. First: to ensure landlords are not claiming deductions for expenses like property tax (IBI), community fees, insurance, or mortgage interest during periods when the property is unoccupied. Second, to enforce taxation on the empty property based on its cadastral value, even when no rent is being collected.
Supreme court ruling fuels inspections
The surge in inspections follows a February 2021 ruling by the Spanish Supreme Court. The judges determined that landlords could not deduct expenses for the days their property was not rented out. Moreover, they are required to pay taxes on the property’s “imputed income”. This is calculated as 2% of the cadastral value, or 1.1% if the cadastral value was revised after 2012—during these vacant periods.
Lawyer Juan Osuna from Fieldfisher notes in El Economista that the increase in inspections is partly due to Hacienda’s access to utility consumption data. Significant variations in electricity and water usage can trigger automatic alerts. “The Supreme Court’s ruling seems unfair, but it must be followed,” Osuna says. He highlights the absurdity of disallowing deductions for costs like IBI during brief vacancy periods, especially when the landlord has no intention of living in the property.
A burden for office owners and tourist rentals
The situation has hit office landlords particularly hard, as many offices have been left vacant due to the pandemic and the rise of remote work. Lawyer Sergio Carpio from ETL Global emphasises that office owners are disproportionately affected. He criticises the ruling as an “absolute contradiction,” as landlords are forced to pay taxes on a presumed income, even though they are not receiving rent and still have to cover property expenses.
Carpio predicts that the matter may eventually be taken to the European Court of Justice (ECJ), as landlords facing these inspections will exhaust all legal avenues, and European courts often side with taxpayers.
Long-standing controversy over imputed income
Bosco Montejo of Freshfields explains that taxing imputed income has always been controversial. It treats property owners as if they are earning rental income even when they are not. This approach can conflict with the constitutional principle of economic capacity, which dictates that taxes should be based on actual income. Landlords must declare a percentage of the cadastral value when their property is vacant, despite generating no rental income during that time.
As Hacienda intensifies its efforts, landlords must stay vigilant and comply with the tax requirements, even when their properties are sitting empt