Tuesday, 30 June 2020
Is renting your house as a holiday let still a viable option? Part six – my thoughts on the future of the holiday let market
Is renting your house as a holiday let still a viable option?
Part 6 – My thoughts on the future of the holiday let market
Predicting the future is not something I would consider my forte, but as an owner you are always looking ahead at least a year (or should be). The licensing was introduced because the massively influential hotel lobby felt self-catering lets were undercutting their businesses, especially when the good times came to an abrupt holt in 2008/9. In fact, if the financial crisis hadn’t happened I suspect we would not be where we are today with rental legalities. The crisis highlighted to the Spanish government that they were missing out on millions in unpaid tax on undeclared income and that combined with pressure from the hotel lobby was the catalyst for licenses.
Neither of these factors is going to change – hotels will continue to insist on tighter controls for their ‘competition’ and the government will continue to want to receive tax revenues. So where will it go from here?
Some owners will find they can’t let legally as their property isn’t suitable. Changes that have been made without proper permissions will start to be picked up as inspections become a more integrated part of the process. At some point I feel there will be an introduction of re-inspections of already licensed homes, maybe every 3 years or so, with some sort of cross-checking of information between government departments, but that is still some way off.
Some owners have already said it isn’t worth the ‘hassle’ of going legal, they have either foregone the rental income or are selling up. Some will continue to rent under the radar, but there are checks that tax inspectors can make so sooner or later they will either be caught, or someone will report them. Remember the fines can go into tens of thousands of Euros. A fine can be big enough to require you to sell the property!
So, are there benefits to owners? Yes. For those that have always tried to be legal there is now a level playing field. We all have to meet certain standards, certain criteria, and we all have to pay our taxes. In theory this will weed out in time from the system those who gave the holiday let market a poor name through badly managed and poorly maintained property. I have noticed a marked increase already in weekly rental costs as owners have increased prices to take into account tax payable, I suspect that upward trend will continue for another year or so as people readjust to their income:cost ratio. Having to register your guests’ passport details with the Guardia Civil will also bring a degree of security and comeback for the owner – we have never had groups of stags and hens or students but those who have say they often paid the price in problems caused but because they did not obtain the full details of the renter and had no contract, all they could do was retain the damages deposit, assuming they had the sense to take one.
Owners need to be organised – booking forms, contracts, passport details, proper book-keeping and tax returns. Staying on top of new rules and regulations is the tricky part as some changes are very sudden and not necessarily that well publicised.
With Town Hall now involved in the early stage of obtaining the license I suspect, under pressure from the hotel lobby, that in some areas, maybe in time all areas, the number of new licenses issued will be restricted. This has happened on the Spanish islands already and is probably the reason why the new earlier stage with Town Halls in the application system has been introduced. How soon that will happen will be down to the individual Town Halls.
In any business supply:demand ratio influences price, so fewer available rentals and high demand will eventually increase prices further, but owners must not get ‘greedy’ or people will just look at alternative locations. It will be a balancing act and for owners a very steep learning curve as we all try to stay on top of the regulations.
Remember this is a blog, not legal advice, so I strongly recommend that you speak to your legal team if you have concerns or are worried about your compliance with the new laws. Renting out your holiday home was never meant to be stressful or difficult, and some owners will find the new rules just too much to deal with and stop renting or even sell up. But if you love your dream home in the sun then filling out a few forms and getting organised can still have its rewards.
Is renting your house as a holiday let still a viable option?
Part 5– A few house-keeping matters
We have already mentioned paying tax on your income, but just a quick clarification. At present, (summer 2018), anyone resident in an EU country pays tax on their rental income at 19% and anyone resident in a non-EU country pays at 24% in Spain. If you are a Spanish resident, then you would declare your income annually in your normal Spanish tax return and pay the tax at the same time as your other tax liabilities. If you are non-resident in Spain, then the rental income must be declared quarterly, and in the first two weeks following the close of each quarter. So, January to March must be declared in the first two weeks of April, and so on through the year. The tax is then payable immediately.
There are allowances that can be declared to reduce your tax liability, such as a percentage of your Community fees, a percentage of your Suma, certain cleaning and keyholding costs and we are also allowed some of the cost of the air conditioning service, insurances and professional fees, plus a few other sundry costs. Exactly how much is deducted will depend on how many days the property is rented out. Some of these costs have changed over the years so it is best to consult a professional to ensure you are claiming the correct expenses and therefore paying the correct tax. Our non-residents tax is reduced pro-rata by the number of days the property is rented.
You are also required to declare your rental income in your country of residence, which for us is the UK. This is declared annually from April each year. Now comes the tricky bit – both countries may want you to produce original receipts! We keep the receipts in the UK but can send scanned copies to Spain if required, and so far that has been ok. In the UK we can claim far more in the way of expenses against our rental income, so the net income from the rental declared in the UK is different from that declared in Spain! I pay someone to file my Spanish tax return quarterly and the cost is very reasonable. In the UK I have another business so have an accountant for that business and he checks over my booking keeping for the house rentals and then adds it onto our annual tax returns accordingly. Due to the dual tax agreement between Spain and the UK we rarely pay tax in the UK on the rental income, but we must still declare it.
Your keyholders are vital to a successful holiday rental. I can honestly say we have had good, not so good and excellent over the years. We even sacked one! But a professional company will take a pride in their work and we currently have both a professional and friendly keyholding company who make our guests feel very welcome. I view the keyholders as our partners in the business.
We do our best to ensure our guests are suitable for our community. Our target market is multi-generation families (grandparents, parents and children holidaying together) as this tends to mean the children of any age are always under adult supervision. Renters do sometimes flout the community rules – either because they haven’t read them or don’t think it matters, but we include a copy in the contract and display them on the back of the door, highlighting rules that are of particular relevance to them. All our neighbours have our telephone number and email address and have been asked to contact us directly if there are any problems. There have rarely been any issues over the years, but we have always acted promptly if told about anything. In fact, we are told when people on the community complain about holiday makers that they don’t mean our renters but the ‘other ones’! Neighbours have even become long-term friends with a couple of our guests! Returning guests are probably an owner’s greatest compliment and we are fortunate enough to have several who book from year to year or bi-annually, others have recommended our property to family and friends. The returning guests are a reflection of getting things ‘right’ and I must give credit to the keyholders as well for that.