Expat Investors In Spanish Property May Lose Tax Breaks

Spain’s recent election results may pose a threat for expat property investors.

Due to the inconclusive result of last month’s Spanish general election, expats looking to buy Spanish property as an investment may lose their tax breaks. The winning political party PSOE wasn’t able to form an overall majority government, and is now looking for support from the anti-capitalist Podemos party. Spain’s PM Pedro Sanchez has already promised a review of tax breaks available to landlords renting their properties long-term as the practice brings more revenue for the economy.

Podemos and its leader Pablo Iglesias ran their campaign on an affordable housing platform, with the far left party claiming investors are at fault for the rise in house prices in popular hotspots such as the Balearics, Madrid and Barcelona. Especially targeted are the tax breaks on Real Estate Investment Trusts, (SOCIMLs), given to those who invest in rental homes for a period of three years or more. The trusts were originally designed to popularise investment in homes for rent, a controversial project in a country without strong laws against the eviction of non-payers.

Those in the know as regards the rental housing sector believe the loss of tax breaks on the popular trusts may well mean less investment in this capital intensive business, leading to a shortage of available properties and lower quality construction and maintenance, all bad new for renters. It’s generally believed the new government will be a form of coalition between Podemos, the Socialists and several nativist political parties representing Catalonia and the Basque Country. Should this happen, ending these tax breaks will be a focus, thus undermining expat and local investor confidence in the sector. Especially for expat investors, both regional and legal stability is important, particularly when the market is dropping.