UK homeowners in Spain could pay less tax on rental income as Supreme Court reviews rules

British homeowners who rent out property in Spain could eventually pay less tax if the country’s Supreme Court rules in favour of allowing non-EU residents to deduct rental expenses. The court has agreed to examine whether landlords living outside the European Union should be taxed on their gross rental income without being able to deduct costs such as repairs, maintenance and insurance. The outcome could have financial implications for UK property owners, although no final ruling has been issued, according to El País.

How much tax do British landlords currently pay in Spain?

Non-residents who rent out property in Spain generally pay Non-Resident Income Tax (IRNR). The standard rate is 24 per cent for people living outside the EU and the relevant European Economic Area countries, compared with 19 per cent for qualifying EU/EEA residents.

Current rules generally allow eligible EU/EEA residents to deduct qualifying expenses directly connected with their rental income. Non-EU residents, including people living in the UK, have generally been unable to deduct these costs when calculating taxable rental income.

The distinction is based on tax residence rather than nationality. A British citizen who lives and pays tax in Spain is not automatically subject to the same rules as someone who lives in Britain and owns a Spanish rental property.

What could the tax saving mean for UK property owners?

Consider a hypothetical UK-resident landlord receiving €12,000 a year in rent from a Spanish property and paying €4,000 in eligible expenses. Under the current general treatment for non-EU residents, the 24 per cent tax rate applied to the full €12,000 would produce a tax bill of €2,880.

If the Supreme Court ultimately confirms that the landlord can deduct all €4,000 in qualifying expenses, taxable income would fall to €8,000. Applying the same 24 per cent rate would produce a bill of €1,920.

That would mean a potential annual saving of €960 in this example. Actual deductions would depend on the expenses involved and the applicable tax rules. The calculation does not represent a saving that landlords can automatically claim today.

Why is Spain’s Supreme Court examining the rules?

The case concerns a property owner living in the United States who rented out a flat in Barcelona. Spain’s tax authorities had refused to allow deductions for rental expenses. The National Court (Audiencia Nacional) subsequently ruled in the owner’s favour, finding that the restriction could conflict with the European Union principle of free movement of capital. Spain’s State Legal Service appealed against that decision.

In July 2026, the Supreme Court agreed to examine the legal question. Judges will consider whether excluding non-EU residents from these deductions is compatible with European law, including whether the restriction can be justified under the rules governing the free movement of capital.

The issue could affect landlords from Britain, the United States and other countries outside the EU, although the final legal position will depend on the court’s decision.

Can British landlords claim back Spanish rental tax?

A previous ruling has already put the issue on the radar of non-EU property owners. Euro Weekly News covered the National Court decision in its August 2025 article, Spain eases tax for non-EU landlords.

However, the Supreme Court’s review means landlords should not assume that the matter is finally settled or that a refund is guaranteed. Anyone who believes they have overpaid should speak to a qualified Spanish tax adviser about their individual circumstances, the relevant ruling and any deadlines for correcting previous returns. Official guidance from Spain’s Tax Agency explains the existing rules for rental income earned by non-residents.

What happens next at Spain’s Supreme Court?

The Supreme Court must now decide whether non-EU residents should be allowed to deduct qualifying expenses from their Spanish rental income under the disputed rules. The case may also raise questions of European Union law.

The case is still pending in the courts. The Supreme Court has agreed to review the issue, but it has not delivered its final judgment. Until the legal position is clarified, British homeowners should not treat the proposed deductions as a confirmed change to Spain’s rental tax rules.