Big Win for Non-EU Property Owners: Spain’s New Ruling on Rental Income Deductions

If you’re a non-EU citizen with property in Spain that you rent out, there’s some game-changing news you need to hear. A recent court decision has leveled the playing field, allowing you to deduct expenses from your rental income for tax purposes—just like your EU counterparts. This could mean significant savings and even refunds on past taxes. In this post, we’ll break down what happened, why it matters, and what you should do next.

The Background: Unequal Tax Treatment for Non-Residents

For years, Spain’s tax system treated non-resident property owners differently based on their nationality. If you’re a tax non-resident (meaning you don’t live in Spain for more than 183 days a year and your economic center isn’t there), you pay the Non-Resident Income Tax (IRNR) on income from Spanish sources, like rental properties.

• EU/EEA non-residents have long been able to deduct allowable expenses (think maintenance, utilities, community fees, and even mortgage interest) from their gross rental income. They then pay 19% tax on the net amount.
• Non-EU non-residents, however, were stuck paying 24% on the gross rental income, with no deductions allowed. This often resulted in a much higher effective tax bill, sometimes double or more compared to EU owners.

This disparity stemmed from Spanish tax laws that aligned with EU regulations for free movement of capital but excluded third-country nationals. Critics argued it was discriminatory, and non-EU owners—including Americans, Canadians, and others—felt the pinch, especially with Spain’s booming rental market in places like Costa del Sol or Barcelona.

The Landmark Ruling: What Changed?

On July 28, 2025, Spain’s National Court delivered a pivotal judgment, declaring the old rules unconstitutional and in violation of EU law. The court ruled that denying expense deductions to non-EU non-residents was unjustified discrimination.

This isn’t just a minor tweak; it’s a full equalization. Now, non-EU non-residents can:

• Deduct actual expenses related to the rental property.
• Pay the 24% IRNR rate on the net income (after deductions), rather than gross.
• Potentially claim refunds for overpaid taxes from the last four non-prescribed tax years (typically 2021-2024, depending on when you file).

The ruling applies retroactively, meaning if you’ve been filing under the old system, you might be eligible for rebates. Some experts estimate savings could run into thousands of euros per year for active landlords.

Who Does This Affect?

This decision primarily benefits non-resident non-EU citizens who own and rent out property in Spain. If you’re a resident (EU or non-EU), you already deduct expenses under the standard Personal Income Tax (IRPF) system. Key groups include:

• International investors from the US, Australia, or Asia.
• Second-home owners who rent occasionally via platforms like Airbnb.
• Anyone with Spanish real estate generating rental income but not living there full-time.

Note: If you’re an EU citizen but non-resident, nothing changes—you were already covered. And for non-EU residents in Spain? If you’re tax-resident, this ruling doesn’t directly apply, as you’re under IRPF rules.

Implications for Property Owners and the Market

This is huge for Spain’s real estate scene. Non-EU investors, who make up a sizable chunk of foreign buyers, now have more incentive to hold and rent properties without the tax penalty. It could boost long-term rentals, ease some market pressures, and make Spain even more attractive for global capital.

The Spanish Tax Agency (AEAT) might appeal to the Supreme Court, though experts doubt it’ll overturn given the EU law alignment. In the meantime, the ruling stands, and filings can proceed under the new interpretation.

How to Take Advantage: Steps to Claim Deductions and Refunds

Don’t wait—act fast to secure your benefits. Here’s a quick guide:

1. Gather Your Documents: Collect proof of expenses (invoices for repairs, insurance, etc.) and rental income records for the relevant years.
2. File or Amend Your IRNR Returns: Use Form 210 for non-resident income tax. For past years, submit a rectification request to reclaim overpayments.
3. Seek Professional Help: Consult a Spanish tax advisor or lawyer specializing in international tax. They can handle appeals if needed and ensure compliance.
4. Deadlines Matter: You have until the end of the year for current filings, but for refunds, act before the four-year statute of limitations expires.

If you’re unsure about your residency status or eligibility, start with a tax residency certificate or visit the AEAT website.

A Special Note for British Property Owners

For British property owners, this ruling is especially significant. Since Brexit, UK citizens lost their EU status, and non-resident British landlords in Spain saw their tax bills spike as they were reclassified under the non-EU 24% gross income rule. This meant no deductions and a heavier tax burden compared to their pre-Brexit days. Now, with the July 2025 ruling, British owners can once again deduct expenses and reduce their taxable rental income, bringing their tax obligations closer to what they enjoyed as EU members. This could mean substantial savings and a renewed appeal for UK investors in Spain’s property market.

Final Thoughts: A Step Toward Fairer Taxation

This ruling is a victory for equality in Spain’s tax system, correcting a long-standing imbalance that deterred non-EU investors, including post-Brexit British owners. Whether you’re a seasoned landlord or just dipping into the Spanish property market, it’s worth reviewing your situation to capitalize on these changes. Spain’s sunny shores just got a bit more appealing for global owners.

Have questions or experiences with Spanish rental taxes? Drop a comment below—I’d love to hear your thoughts!