Thousands of non-resident property owners in Spain — including many British owners with a second home or a rental apartment in the Canary Islands — currently pay tax on the full rental income they receive, without being able to deduct a single euro of expenses. A new case before Spain’s Supreme Court could change that.
THE UNEQUAL TREATMENT THAT HAS BEEN RAISING QUESTIONS FOR YEARS
When an EU or EEA tax resident rents out a property in Spain, they can deduct from their Non-Resident Income Tax (IRNR) base the expenses directly linked to that income: repairs, community fees, insurance, local property tax (IBI), mortgage interest, and similar costs. Tax residents outside the EU/EEA — and, since Brexit, this includes UK residents — have not been able to apply the same deduction: they are taxed on the gross rental income, with no deductions at all.
This difference in treatment has long been controversial, because the EU principle of free movement of capital is not, in certain circumstances, limited to movements within the EU — it can also protect investors from third countries.
WHAT THE SUPREME COURT HAS DECIDED
Under the Supreme Court’s order (Auto) of 15 July 2026 (cassation appeal no. 6741/2025), also reported in AEDAF’s Revista Interactiva de Actualidad, Spain’s Supreme Court has admitted this appeal for cassation to examine precisely this question: whether denying third-country residents the right to deduct expenses linked to renting out their Spanish property breaches the free movement of capital, and whether that restriction could nonetheless be justified under the so-called “standstill clause” of EU law, which allows certain pre-existing restrictions to remain in place.
This gives the Supreme Court the chance to set clear doctrine on an issue that directly affects the taxation of foreign property investment in Spain.
WHAT THIS MEANS FOR YOU AS A NON-RESIDENT OWNER
Until the appeal is resolved, the current rule still applies: non-residents from third countries must continue to declare IRNR without deducting expenses. But it is worth acting now rather than waiting. If the Supreme Court ultimately recognises the right to deduct, owners who have kept records of their expenses (repair invoices, community fee receipts, insurance, letting agency fees) will be in a much stronger position to request a correction of their tax returns for years that are not yet time-barred, and reclaim the excess tax paid.
Our advice is to start organising and keeping that documentation now, and to stay alert for the Supreme Court’s final ruling so you can act quickly once it is known.
At EBF Consulting we have spent years advising non-resident owners — many of them British owners with property in the Canary Islands — on their Spanish tax position. If you have questions about your situation or would like us to review your IRNR return, get in touch.
Official reference: Supreme Court order (Auto) of 15/07/2026 (cassation appeal no. 6741/2025); AEDAF, RIA No. 33-2026 (21/09/2026), “Auto de la semana”.