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New Balearic Islands Holiday Rental Law

Raymundo Larraín Nesbitt, August, 24. 2017

Lawyer Raymond Nesbitt briefly explains the new landmark amendments made to Balearic Islands' Holiday Rental Law (Law 8/2012).

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of September 2017

 

 

 

 

Introduction

The Balearic Islands Administration has recently approved Law 6/2017, of 31st July 2017 which introduces a batch of significant changes to its 2012 Tourism law. These changes came into force on the 1st of August 2017, on the day after they were published in the Balearic Islands Official Law Gazette (BOIB).

Because of how significant I think they are, and their wider impact on the short-term Balearics rental market, I am compelled to devote September’s article to shed some light on them. To clarify, this is not a new law that has been passed, they have simply amended 2012 holiday rental law. As this law was passed five years ago, I will not be analysing it as everyone should already be familiar with it and I already mentioned it in my recap article of 2015 Holiday Rental Laws in Spain.

I will briefly highlight the major changes to my mind without going into the minutiae.

 

EDIT 12th September: As reportedly there seems to be some confusion over my text, for which I profusely apologise, I will try to clarify the situation.

The confusion stems from readers not being familiar with the Balearics Tourism law of 2012, which I already mentioned I would not be analysing in this article. My article may seem baffling if you are unfamiliar with said law because I took for granted readers already knew it as it is a five-year-old law (which clearly was my mistake).

The matter of holiday homes is highly controversial amid Balearic politicians. This bill has been consensuated by political parties with opposing views and some of them even abstained from voting it in open disagreement with its thrust. Whereas some political parties welcome the idea of private holiday home rentals, others want to outright ban them. As a reflection of these polarising views, the bill is cobbled together with inherent contradictions which lead to some grey areas and confusion.

All existing rental or tourism licences are valid, regardless of whether you are resident or non-resident. So, if you have attained already a tourism licence you can continue business as usual. Going forward, this bill sets a one-year moratorium on issuing ALL new rental licences (Declaraciones Responsables de Inicio de Actividad Turística or DRIATS for short) for both detached properties and tenements within a community. Consells Insulars and town halls will now need to determine in their planning zones which areas are apt for private holiday home rental.

A new rental modality has been introduced for main homes where the landlord has his habitual residency. In other words, you must be resident in the Balearics to rent out your property as a holiday home under this new modality (the exact terms are unknown and will be developed by further regulation). To attain this new type of rental licence you must comply with the requirements I set out in my text below. Does this imply that non-residents can no longer apply for rental licences? No, it doesn’t mean that.

After the one-year moratorium has elapsed, hopefully the local Administrations will have defined clearly the boundaries of the new touristic areas where new rental licences may be issued (for both residents and non-residents alike). Any property outwith the specially earmarked ‘tourism zonings’ will not be able to attain a coveted rental licence (with the only exception if they already had one issued before this regulation was passed last August).

The logic behind this new rental modality, exclusive to residents, is to allow locals, who apparently are struggling to meet their mortgage repayments (sic), to make a supplementary income renting out their properties to tourists for a maximum of 60 days within a calendar year. Additionally, locals allegedly struggle to find affordable accommodation, particularly in Palma and Ibiza, which has sparked a social backlash on holiday homes this summer and Tourism in general. This public outcry has led local politicians to seek a sustainable tourism growth model which apparently has already hit a glass ceiling in the Balearic Islands.

The pervading idea behind the bill is to restrict furthermore rental licences and even go as far as to reduce them gradually over the next years. By the same token, new draft laws will restrict the number of properties a single individual can rent out to avoid speculation and concentration of properties in few hands which drives rental prices upwards (tut mir leid, Bettina). Year-on-year holiday home rental prices have increased by a whopping 40% in Palma city alone.

Batch of changes

 

Holiday-home

  • A new rental modality has been introduced which requires the landlord to be resident to rent out. Only properties that constitute the permanent residence of a landlord can be rented out under this new rental type! Let us examine the significance of this with an example for ease of comprehension: a British national resident in the UK, who owns a second holiday home in Port Andratx, may NOT rent it out as, by definition, he is a non-resident and it is not his main residence.

 

       These properties can only be rented out for a maximum of 60 days within a calendar year. The landlord must have applied and attained a most sought-after rental licence issued by its consell or local town hall which is entirely at the discretion of the local Administration and is contingent on the zoning of your property (PIAT) and if it is earmarked as suitable for holiday rental.

       This new law introduces an overall capped number of beds (currently set at 623k) with each island being assigned a quota. This figure is planned to be reduced gradually over the next years by as much as 100k. No new rental licences will be issued over the next year until the touristic planning zones are determined by the town halls.

    Oh, and I forgot to add that even if you manage the herculean feat to attain a coveted rental licence, the rental permission is renewable every 5 years providing you fulfil all the requisites – again. Meaning after five years they may not renew it, in which case you can’t rent it out after all.

  • When the property is marketed, in all publicity it should clearly state the rental code of the property.
  • A novelty of this bill is to allow for the first time ever for properties within a Community of Owners to be offered and marketed as private holiday homes. This can only be done if the majority of the property owners have approved it in a General Assembly and this agreement has been lodged at the Land Registry. In other words, if a Community of Owners forbids the use of properties as holiday homes a landlord cannot (lawfully) rent out his property (in the Balearics).
  • The person who markets the property must inform the Police of every lodger of age 16 and over in compliance with Spain’s Security law.
  • Short-term lets are restricted to 30 days (one month) to the same tenant and may not surpass this limit.
  • Only properties with a minimum of 5 years antiquity can be marketed as holiday homes (unless specific regulation states otherwise) and must have been used as a private residence.

 

Fines

  • Unlicenced holiday rentals (clandestine lettings): Landlords who offer rental holiday homes without having a rental licence issued by the Administration can now be fined between €20,000 to €40,000 (per property!).
  • Failure to communicate to the Administration change of property ownership on holding a rental licence (selling property). May result in fines of up to €4,000.
  • Serious offences: are now fined between €4,001 to 40,000.
  • Very serious offences: are now fined between €40,001 to 400,000.

 

Registering your holiday home to pre-empt fines – You can still be fined for non-compliance!

It should be noted that the fact you apply for a rental licence while you wait for it to be issued by the consell does not exclude you in any way of being fined in the interim.

Moreover, as I care to explain in my blog post regarding the region of Andalusia, if you apply for registration but you lack some of the prerequisites (i.e. your property does not have a mandatory Licence of First Occupation issued, article 50) you are breaking the law and you will be (heavily) fined by the Administration. Which is why I advise all landlords not to register their holiday homes unless they are fully compliant. Ignorance on the law’s finer terms will not be accepted as an excuse not to be fined.

Conclusion

If you are looking to buy property as an investment in the Balearic Islands (Mallorca, Ibiza, Menorca and Formentera) and plan to rent it out short-term, you may want to look elsewhere in Spain.

Pushed by a lack of affordable accommodation for natives, local politicians seek to limit the ability of property owners to rent out their properties as holiday homes; specifically targeting non-resident landlords. Clearly this matter is a serious local problem, but I question the right approach is to limit the ownership rights of property owners. I venture that limitation on planning permits and adopting a sustainable development growth model would perhaps be a more advisable alternative (read investor-friendly) as opposed to curtailing owner’s rights.

The changes brought about will also have unforeseen market consequences, possibly drumming up speculation, as properties within areas apt for holiday home rentals will likely be more valuable than identical properties in excluded areas from private short-term rentals.

This new regulation is so restrictive and has associated such stiff fines that it is honestly not worth all the hassle and risk of getting caught red handed without a rental licence. Many other regions in Spain (i.e. Andalusia) have more landlord-friendly regulations with laxer terms and lenient fines in comparison. Not to mention how they have enabled a system of online whistle-blowers with a whiff reminiscent of the best the U.S.S.R. had to offer the world, not. These measures have Kim Jong-un’s seal of approval.

This new regulation unabashedly wants to paint into a corner private holiday rentals, demonising them, making them a most unattractive proposition. It will likely be the death knell of the burgeoning private holiday rental industry in the Balearics on the heels of dubious local political interests. This new regional law in my opinion is borderline unconstitutional as it is a frontal attack to private property which is a legal right enshrined in art. 33 of the Spanish Constitution. Furthermore, it induces pernicious asymmetrical inequalities in regional holiday home regulation which may have a broader impact on foreign investment diverting funds to other more investor-friendly regions in Spain to the detriment of the Balearics.  

I will self-restrain myself and resist the urge to comment on the attack to a free market economy and how these measures (artificially) stifle competition. I had already ranted at length on these counterproductive consequences and who they (really) benefitted in my articles of 2013 New Measures to Bolster Spain’s Ailing Rental Market and in 2015 Holiday Rental Laws in Spain. Unfortunately, time has proved me right in all my comments.

Ultimately, it may be needed for the State itself to step in decisively and curb the law-making enthusiasm of regional politicians; centralising regulation of holiday home rentals under common standards to iron out provincial lopsided regulation. This would be truly ironic, given how the Government itself in 2013 opened the legislative floodgates, leaving the door ajar for all regions in Spain to pass new laws on private holiday rentals. The Government should backtrack on its (derailed) policy and rein in legislative power on a matter of national importance to the Spanish economy.

Regardless, if you still remain unconvinced by my remarks and decide to fearlessly plough ahead and rent your property out, I strongly advise you to take legal advice on your Balearics holiday home rental as the new laws in place are so complex and the fines on non-compliance are humongous.

I should clarify this new law should not affect your decision-making if you are simply buying property in the Balearics with a view to enjoy the property yourself (in lieu of renting it out as a holiday-home). Balearics is a beautiful place to live in, despite its delusional politicians.

 

Politics: the art of creating new problems where none existed.”

 

Article also published at Spanish Property Insight: New Balearics Holiday Rental Law

 

Legal services Larraín Nesbitt Lawyers can offer you

 

Holiday-home letting related articles

 

Please note the information provided in this article is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. No delusional politician was harmed on writing this article. VOV.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.

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Andalusia to slash Inheritance tax for inheritances under 1 million euros

Raymundo Larraín Nesbitt, September, 21. 2017

By Raymundo Larraín Nesbitt
Lawyer – Abogado
21st of September 2017

 

Senior Andalusian politicians agreed last night to significantly reduce Spanish Inheritance Tax (IHT) in the autonomous region of Andalusia. This landmark tax reform is without a shadow of a doubt the most important tax milestone in the autonomous region of Andalusia in the last 35 years (since its inception in 1982). 

The change will mean 95% of inheritors in Andalusia will no longer need to pay inheritance tax on inheriting assets from their parents or spouse which is a welcome respite. These fiscal changes are in addition to those approved last year which I already reviewed in my article Inheritance Tax Novelties in Andalusia. FAQ on IHT.

This bold move allows Andalusia to finally jump onto the band wagon of other autonomous regions in Spain which are applying reductions on IHT to such an extent which in practice translates to almost suppressing it i.e. Madrid, Basque Country, La Rioja, Navarre, Catalonia, Valencia, Balearic, Canary Islands and now Andalusia as well.

As I had pointed out in previous articles of mine relating to Spanish Inheritance Tax, there was an ongoing trend throughout Spain over the last decade to supress or greatly reduce inheritance tax to the point of negating it. Andalusia finally joined the trend yesterday. Better late than never. Notwithstanding yesterday’s agreement, there are still political forces vying to completely abolish it (Partido Popular).

Mrs Susana Diaz (PSOE) and Juan Marin (Ciudadanos) agreed that as from the first of January 2018 these changes would come into effect. No law has been enacted yet with these changes.

To benefit from these new tax allowances, taxpayers must be EEA/EU-residents.

In a nutshell, the changes are:

Spanish Inheritance Tax

  • Inheritances equal to or below €1,000,000 will go untaxed (per inheritor).
  • Pre-existing wealth nil rate band of inheritor raised to €1,000,000.

 

Gift Tax

  • Gifts between parents and children of up to €1,000,000 will also go untaxed provided certain criteria is met (gift for the purpose of job creation or to set up a company). Exact details to be specified by further regulation.

 

Who benefits?

  • Natural and adopted children.
  • Spouse.

 

Conclusion

On average, every day 19 inheritors turn down their inheritances in Andalusia in order to avoid paying steep inheritance taxes. Following this new regulation, this will no longer be the case. 95% of taxpayers will benefit from this change as from next year.

The Autonomous region of Madrid had attracted last year alone the residence of over 2,000 HNWI (with average estates of 9mn) escaping other less lenient inheritance tax regions such as Andalusia. This new measure was also necessary to avoid wealthy individuals bailing out to other communities in Spain with the consequent loss of wealth and jobs this resulted in.

For once, I’m happy to commend politicians on adopting a sensible tax measure that benefits so many and contributes towards dynamising the Andalusian economy. Kudos to them!

 

Legal services Larraín Nesbitt Lawyers can offer you

Making a Spanish will
Transfer of Estate to Heirs (Inheritance Tax)
Death Certificate
Land Registry Search (Nota Simple)


Inheritance-related articles

New EU Regulation to be Passed on Succession and Wills –18th May 2010
Non-residents: Six Advantages of Making a Will in Spain – 8th August 2012
Buying and Owning Spanish Property through Companies: Pros and Cons – 7th March 2014
Taxes on Selling Spanish Property – 8th December 2014
Spanish Wills and Probate Law in Light of European Regulation 650/2012 – 8th January 2015
Changes to Spain’s Inheritance and Gift Tax Law – 21st February 2015
Dispelling Spanish Inheritance Tax Myths – 8th August 2015
Spanish Inheritance Tax for Non-Residents (Part I) – 21st February 2016
Spanish Inheritance Tax for Non-Residents (Part II) – 8th March 2016
Inheritance Tax Novelties in Andalusia. FAQ on IHT – 8th September 2016
Which beneficiaries are hit worst by Spanish Inheritance Tax (IHT)? – 2nd June 2017
Non-Resident: Why you need to make a Spanish will – 24th June 2017
Non-resident: careful on making a will in Spain – 30th August 2017

 

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.017 © Raymundo Larraín Nesbitt. All rights reserved.

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Last Press Entry:

How to inspect an off-plan property overseas

The Sunday Times, July, 9. 2017

Q&A with The Sunday Times' journalist Emma Wells.

Link to the article.

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