For many people the idea of letting out their property in Spain is attractive. It can help cover your costs but be sure that you are aware of the local regulations and have the necessary safeguards in place. Here are a few points to remember;

Always ensure that there is a valid, written agreement between you the landlord and the tenants. It is advisable to have a local legal representative draw up the agreement for you. The agreement should make it clear that the tenants should look after the property for you and that they will be responsible for any damage to the contents and/or property. In addition, clearly state who is responsible for payments for electricity, gas and telephone etc.

If possible, always check the credibility of the prospective tenant by running a credit check and requesting references. Remember at the end of the day you are letting your home to a perfect stranger and you could be many thousands of miles away. Make sure that you keep copies of all bills paid on the property and copies of agreements along with any other relevant paperwork.

Leases of urban properties in Spain are regulated by the new Urban Leases Act of 1994 which has brought about several important changes to the old system under the 1964 act. The new act applies not only to commercial and domestic dwellings but also to holiday and seasonal lets. One of the important items governed by the act, and relating to long-term leases is the tenants rights to an early resolution of the contract with very low penalties and the benefits of the statutory automatic extension of the duration of the lease. If you intend to let your property you should seek a copy of this act and ensure you have legal advice.

For properties let in the Canary Islands as tourist accommodation, there is a special act (of 1995) that states a professional property agent has to be used. The agent must hold an official licence. Owners failing to comply are subjected to heavy fines.

The tax rate on rental income is either 25% or 35% depending on whether or not you are deemed to be a permanent resident in Spain. What may appear strange to us is that the tax is paid by the tenant, a deduction for the tax is made from the rental before the net amount is passed on to the owner. Insist on proof that the tax payment has been made on your behalf. Any income from rent received in Spain by non-residents is subject to a payment of a flat rate of 25%. Even if the property is not rented, owners are still liable for the income tax, calculated on deemed letting income at the rate of 2% of 20% of the official property value.

Arrange for the tenancy agreement to be drawn up by a gestor (a Spanish legal representative). Any interest payable on a loan is not allowable against the rental income, even though UK tax is due on the income if you are a UK resident. There is a treaty with Spain that any Spanish taxes paid to be offset against UK tax.

When the property is sold and the proceeds are invested in another principal and habitual home then no Spanish Capital Gains Tax is payable (as long as the repurchase is within 2 years of the disposal). Alternatively if the property is owned for more than 10 years, then the CGT liability disappears. This does not mean however, that your liability to UK tax also disappears.