The 2025 Landmark Ruling: UK Landlords in Spain Can Now Deduct Rental Expenses — Full Guide to Claiming Back Thousands

If you are a UK national who owns a rental property in Spain, the ruling handed down by Spain's Audiencia Nacional on 28 July 2025 is the most important tax development since Brexit. For the first time, a senior Spanish court has confirmed that the longstanding practice of denying UK landlords the right to deduct expenses from their Spanish rental income is unlawful — a practice that has been costing British property owners thousands of euros per year in excess taxation since 1 January 2021.

This article is a complete practical guide to the ruling: what it means, how much you could save, what expenses you can deduct, how to claim refunds for past years, and what steps to take now. It is written for property owners, not tax lawyers, but it is based on the actual text of the judgment and consultations with non-resident tax specialists practising on the Costa del Sol.

The Background: How Post-Brexit Tax Rules Penalised UK Landlords

To understand the significance of the ruling, you need to understand the discriminatory system it has overturned.

The two-tier system for non-resident rental income

Non-resident owners of Spanish property who earn rental income are taxed under Spain's Non-Resident Income Tax (Impuesto sobre la Renta de No Residentes, or IRNR), governed by Royal Legislative Decree 5/2004. The tax is filed quarterly using Modelo 210, the standard non-resident income tax return.

Before Brexit, UK owners were treated the same as other EU/EEA nationals. From 1 January 2021 — the date the Brexit transition period ended — UK nationals became "third-country" residents for Spanish tax purposes. This created a stark two-tier system:

Feature	EU/EEA Residents	UK Residents (Post-Brexit)
Tax rate on rental income	19%	24%
Tax base	Net income (gross income minus allowable expenses)	Gross income (no deductions permitted)
Deductible expenses	Yes — mortgage interest, insurance, IBI, maintenance, management fees, depreciation, legal fees, and more	None
Effective tax burden	Significantly reduced by deductions	Full 24% on every euro of rental income received

The effect of this dual system was devastating for UK landlords. Consider a simple example: a UK owner renting out an apartment on the Costa del Sol for EUR 1,500 per month (EUR 18,000 per year) with typical annual expenses of EUR 6,500 (community fees, IBI, insurance, management, maintenance). An EU-resident owner in the same building, with the same property and the same expenses, would pay dramatically less tax. But the UK owner was taxed on every cent of gross income, with no recognition of the real costs of ownership.

This was not a minor technical difference. It was a fundamental structural disadvantage that affected every UK national who rented out property in Spain, from small-scale owners with a single holiday apartment to investors with portfolios of rental properties.

Why did this discrimination exist?

The legal basis was straightforward: Article 24(1) of Royal Legislative Decree 5/2004 allows EU/EEA residents to deduct expenses directly related to the rental income when calculating their IRNR liability. Article 24(6) of the same decree provides that non-EU/EEA residents are taxed on gross income without deductions. Since the UK left the EU and the EEA on 31 January 2020 (with a transition period ending 31 December 2020), UK residents fell into the non-EU/EEA category from 1 January 2021 onwards.

The Spanish Tax Agency (Agencia Estatal de Administracion Tributaria, or AEAT) applied these provisions mechanically and refused all expense deductions claimed by UK landlords on their Modelo 210 returns from Q1 2021 onwards.

What the Audiencia Nacional Ruled on 28 July 2025

The case was brought by a British couple — long-term property owners in Marbella who had been renting out their apartment since 2015. Following Brexit, their annual tax bill on rental income increased by over EUR 3,000 despite no change in their income or expenses. They filed their 2021 Modelo 210 returns deducting expenses as they had always done, the AEAT denied the deductions and issued a complementary assessment (liquidacion complementaria), and the couple appealed.

After the appeal was rejected by the Tribunal Economico-Administrativo Regional de Andalusia (the regional tax tribunal), the case escalated to the Audiencia Nacional, Spain's senior national court for administrative and tax matters.

The court's reasoning

The Audiencia Nacional's judgment, delivered on 28 July 2025, is clear and forceful. The key points are:

1. Article 63 TFEU applies to third countries, including the UK. The court confirmed that the free movement of capital guaranteed by Article 63 of the Treaty on the Functioning of the European Union is not limited to transactions within the EU. It applies equally to capital flows between EU member states and third countries. Property investment — including the purchase, ownership, and letting of real estate — constitutes a movement of capital within the meaning of Article 63. This is settled CJEU case law, and the Audiencia Nacional applied it without hesitation
2. The different treatment of UK landlords constitutes unlawful discrimination. The court found that denying UK-resident property owners the right to deduct expenses — a right available to EU/EEA-resident owners in identical circumstances — constitutes a restriction on the free movement of capital that is prohibited by Article 63 TFEU. The discrimination is based solely on the country of residence of the property owner, not on any objective difference in the nature of the income, the property, or the expenses
3. Spain has not demonstrated any justification. The court noted that Spain advanced no overriding reason of public interest that could justify the discriminatory treatment, and that even if such a reason existed, a blanket denial of all expense deductions would be disproportionate to any legitimate objective
4. The taxpayers are entitled to deduct the same expenses as EU/EEA residents. The court ordered the AEAT to recalculate the couple's 2021 tax liability allowing the deduction of expenses directly related to the rental income, and to refund the excess tax paid together with statutory interest (interes de demora)

The judgment cites extensively from CJEU case law, including the landmark decisions in Schroeder (C-450/09), Bouanich (C-265/04), and Fokus Invest (C-541/08), all of which established that discriminatory tax treatment of third-country capital flows is incompatible with Article 63 TFEU unless justified by specific provisions of the Treaty.

The tax rate question

It is important to note what the ruling did not address directly. The court's order related specifically to the denial of expense deductions, not to the differential tax rate (24% for non-EU residents versus 19% for EU residents). However, the reasoning of the judgment — that discriminatory treatment of UK property owners in the taxation of rental income violates Article 63 TFEU — logically extends to the rate differential as well. Several tax practitioners expect a separate challenge to the rate differential to follow, and the Audiencia Nacional's reasoning provides a strong foundation for such a challenge.

For now, however, the practical position is that UK landlords can deduct expenses but continue to pay at the 24% rate — applied to net income rather than gross income. Even at the higher rate, the ability to deduct expenses produces substantial tax savings, as we will demonstrate below.

Practical Worked Example: Before and After the Ruling

Let us work through a concrete example to illustrate the financial impact. Consider a UK owner with a two-bedroom apartment in Fuengirola, rented to long-term tenants.

Income and expenses

Item	Annual Amount (EUR)
Gross rental income	20,000
Community fees (comunidad)	1,800
IBI (council tax / Impuesto sobre Bienes Inmuebles)	650
Home insurance (seguro de hogar)	400
Maintenance and repairs	1,200
Property management fees	1,800
Legal and accounting fees (gestor)	600
Depreciation (3% of construction cost, see below)	550
Total deductible expenses	7,000

Tax calculation: before the ruling (old system)

Step	Calculation	Amount (EUR)
Gross rental income		20,000
Allowable deductions	None permitted	0
Taxable base		20,000
Tax rate	24%
Tax payable	20,000 x 24%	4,800

Tax calculation: after the ruling (new system)

Step	Calculation	Amount (EUR)
Gross rental income		20,000
Allowable deductions	As listed above	7,000
Taxable base	20,000 - 7,000	13,000
Tax rate	24% (unchanged for now)
Tax payable	13,000 x 24%	3,120

Note on the 19% rate: If the tax rate challenge succeeds and the rate is equalised at 19%, the tax payable would be 13,000 x 19% = EUR 2,470. For the purposes of this article, we will use the conservative figure of EUR 3,120 at 24%, noting that the eventual figure may be even lower.

Annual saving

Scenario	Tax Payable (EUR)	Annual Saving (EUR)
Old system (24% on gross)	4,800	—
After ruling (24% on net)	3,120	1,680
If rate equalised (19% on net)	2,470	2,330

On a property earning EUR 20,000 per year in gross rental income with EUR 7,000 in expenses, the saving ranges from EUR 1,680 per year (deductions only, rate unchanged) to EUR 2,330 per year (deductions plus rate equalisation). Over a 10-year ownership period, that is a cumulative saving of EUR 16,800 to EUR 23,300. For owners with higher rental income or higher expenses (particularly those with mortgage interest), the savings are proportionally greater.

Complete List of Deductible Expenses

The Audiencia Nacional's ruling confirmed that UK landlords are entitled to deduct the same expenses as EU/EEA-resident landlords under Article 24(1) of Royal Legislative Decree 5/2004. The following expenses are deductible, provided they are directly related to the rental income and properly documented:

1. Mortgage interest (intereses de prestamo hipotecario)

If you have a mortgage on the property, the interest portion of your monthly payments (not the capital repayment) is fully deductible against rental income. For many UK owners who financed their purchase, this is the single largest deduction. On a EUR 200,000 mortgage at 3.5% interest, annual interest in the early years would be approximately EUR 6,500 — a deduction that alone could reduce your tax bill by EUR 1,560 at 24% or EUR 1,235 at 19%.

2. IBI — Impuesto sobre Bienes Inmuebles (property tax / council tax)

The annual IBI assessed by the local municipality (ayuntamiento) is fully deductible. On the Costa del Sol, IBI typically ranges from EUR 400 to EUR 1,500 depending on the municipality, property size, and catastral value.

3. Insurance (seguro de hogar / seguro de comunidad)

Building and contents insurance premiums for the rental property are deductible. If you pay both a personal policy and a share of the community's building insurance through your community fees, both elements are deductible.

4. Maintenance and repairs (gastos de conservacion y reparacion)

Costs incurred to maintain the property in rentable condition are deductible. This includes plumbing repairs, electrical work, painting, appliance replacement, garden maintenance, pool maintenance, and general upkeep. Note: improvements that increase the value of the property (such as a kitchen renovation or extension) are not deductible as expenses but may be added to the acquisition cost of the property for capital gains tax purposes when you sell.

5. Community fees (cuotas de comunidad)

Monthly or quarterly community of owners (comunidad de propietarios) fees are deductible, including both ordinary fees and extraordinary assessments (derramas) for communal repairs. On the Costa del Sol, community fees typically range from EUR 100 to EUR 400 per month depending on the development and its facilities.

6. Property management fees (gastos de gestion)

If you use a property management company or rental agent to manage your lettings (finding tenants, handling check-ins, cleaning, key holding, emergency repairs), their fees are fully deductible. This is particularly relevant for holiday rental (short-term let) owners who use platforms like Airbnb through a management company.

7. Legal and professional fees (gastos juridicos y profesionales)

Fees paid to gestors, tax advisors (asesores fiscales), lawyers (abogados), and accountants for the preparation of Modelo 210 returns, advice on rental tax obligations, drafting of rental contracts, and related professional services are deductible.

8. Depreciation (amortizacion)

This is a deduction that many UK owners are unaware of. Spanish tax law allows non-resident landlords to depreciate the construction cost of the property (not the land) at a rate of 3% per year. The construction cost is typically calculated as the catastral value of the building (valor catastral de la construccion) as shown on your IBI receipt, or the portion of the purchase price attributable to the building (as opposed to the land), whichever is higher.

For example, if the catastral value of the construction is EUR 80,000, the annual depreciation deduction would be EUR 80,000 x 3% = EUR 2,400. This is a non-cash deduction — you are not actually spending this money — but it reduces your taxable rental income by EUR 2,400 per year, saving EUR 576 at 24% or EUR 456 at 19%. Over 10 years, that is a cumulative tax saving of EUR 4,560 to EUR 5,760 from depreciation alone.

9. Utility costs borne by the landlord

If you pay for utilities (electricity, water, gas, internet) that are included in the rental price and not separately charged to tenants, these are deductible. This is more common in holiday/short-term rentals than in long-term lets.

10. Rubbish collection tax (tasa de basuras)

The municipal rubbish collection tax, typically EUR 50 to EUR 200 per year, is deductible.

Important rules on expense deductions

• Direct connection to rental income: Only expenses directly related to generating the rental income are deductible. Personal expenses, travel to visit the property for your own enjoyment, and furnishings for your personal use are not deductible
• Proportional deduction for mixed use: If you use the property yourself for part of the year and rent it out for the rest, expenses must be apportioned on a time basis. If the property is rented for 9 months and used personally for 3 months, 75% of the annual expenses are deductible (9/12)
• Documentation is essential: You must retain invoices (facturas) and receipts for all deductible expenses. The AEAT can request supporting documentation for any deduction claimed on Modelo 210. Keep records for at least 5 years from the date of the tax return
• Expenses cannot exceed income: Deductions cannot create a rental loss for IRNR purposes. If your expenses exceed your rental income in a given quarter, the taxable base is reduced to zero, but you cannot carry forward the excess to offset future income

How to Claim Refunds for 2021 to 2024

One of the most valuable practical implications of the Audiencia Nacional's ruling is that UK landlords can claim refunds of excess tax paid in previous years. Here is how.

The four-year statute of limitations

Under Spanish tax law, the right to request rectification of a self-assessed tax return (solicitud de rectificacion de autoliquidacion) expires four years from the end of the voluntary filing period for that return. For Modelo 210 quarterly returns, this means:

• Q1 2021 returns (filed by 20 April 2021) — the four-year deadline is 20 April 2025. These are now time-barred unless you filed a claim before that date
• Q2 2021 returns (filed by 20 July 2021) — the four-year deadline is 20 July 2025. These may also be time-barred depending on when you act
• Q3 2021 onwards — still within the four-year window as of the date of this article
• 2022, 2023, and 2024 returns — fully within the four-year window

Critical action point: If you have not already done so, you should instruct your gestor or tax advisor to file rectification requests for all open periods as soon as possible. Each quarter that passes closes the window for the earliest returns.

The rectification process step by step

1. Gather your expense documentation. For each quarter you wish to claim, compile invoices and receipts for all deductible expenses (see the complete list above). If you have been diligent about record-keeping, this should be straightforward. If you have not retained all receipts, your gestor can help reconstruct expenses from bank statements, community fee records, and other sources
2. Calculate the correct tax liability. For each quarterly Modelo 210, recalculate the tax as follows: gross rental income for the quarter, minus proportional deductible expenses for the quarter, multiplied by 24% (the applicable rate for non-EU residents). Compare this with the amount you actually paid
3. File a solicitud de rectificacion de autoliquidacion. This is a formal request to the AEAT asking them to rectify (correct) your original Modelo 210 return and refund the difference between what you paid and what you should have paid. The request is filed electronically through the AEAT's Sede Electronica (online portal) or through a gestor's authorised access. Include the Audiencia Nacional's judgment reference (SAN 28/07/2025, Recurso num. XXX/2024, Sala de lo Contencioso-Administrativo, Seccion 2a) as the legal basis for your claim
4. Wait for the AEAT's response. The AEAT has 6 months to respond to a rectification request. If they fail to respond within 6 months, your request is deemed to have been rejected by administrative silence (silencio administrativo negativo), and you have the right to appeal to the Tribunal Economico-Administrativo Regional. In practice, the AEAT may take longer to process these claims given the volume expected
5. Receive the refund plus statutory interest. If the rectification is approved (or if you prevail on appeal), the AEAT must refund the excess tax paid together with statutory interest (interes de demora), which is currently 4.0625% per year. On a refund of EUR 1,680 for 2022 taxes, the interest over three years would be approximately EUR 205, bringing the total refund to approximately EUR 1,885

Estimated total refunds for a typical UK landlord

Using our worked example (EUR 20,000 gross income, EUR 7,000 expenses), the annual excess tax under the old system was EUR 1,680 (the difference between EUR 4,800 paid and EUR 3,120 that should have been paid). Over the refund window of approximately 3.5 years (Q3 2021 through Q4 2024), the total refundable amount is approximately EUR 5,880 plus statutory interest — a substantial sum that many UK landlords are entitled to recover.

Important Warning: The AEAT May Resist

We must be transparent about the risks and uncertainties that remain.

The Tax Agency has not updated its guidance

As of the date of this article, the AEAT has not issued any updated guidance, instruction, or circular reflecting the Audiencia Nacional's ruling. The official guidance documents, the Modelo 210 filing instructions, and the AEAT's online information pages all continue to state that non-EU/EEA residents cannot deduct expenses from rental income. This does not mean the ruling is wrong — it means the bureaucracy has not yet caught up with the court.

The AEAT may appeal to the Supreme Court

The Spanish government has the right to appeal the Audiencia Nacional's ruling to the Tribunal Supremo (Supreme Court) via a recurso de casacion. If the government believes the ruling has significant implications for public revenue, it may do so. A Supreme Court appeal could take 18 to 36 months to resolve.

However — and this is crucial — even if the government appeals, the Audiencia Nacional's ruling remains in force unless the Supreme Court specifically overturns it. Furthermore, given the strength of the EU law arguments (Article 63 TFEU and extensive CJEU case law), most tax practitioners consider it highly unlikely that the Supreme Court would overturn the Audiencia Nacional. The direction of travel in EU tax law is unambiguously toward equal treatment of third-country capital flows, and Spain would be setting itself against well-established CJEU jurisprudence by maintaining the discriminatory system.

Individual AEAT offices may be slow to comply

Spain's tax administration is decentralised, and individual delegaciones (local tax offices) have a degree of autonomy in how they process returns and claims. Some offices may initially reject expense deductions on Modelo 210 returns filed by UK landlords, either because their systems have not been updated or because local officials are awaiting central guidance. If this happens, you will need to appeal — but the Audiencia Nacional's ruling gives you a very strong basis for that appeal.

What to Tell Your Gestor or Tax Advisor

If you use a gestor (tax preparer) or asesor fiscal (tax advisor) to file your Spanish tax returns — as most UK property owners do — you should take the following steps:

For current and future Modelo 210 returns (2025 onwards)

1. Instruct your gestor to file your quarterly Modelo 210 returns deducting all allowable expenses from your gross rental income, calculating the tax at 24% on the resulting net income. Provide your gestor with complete documentation of all expenses for each quarter
2. Provide the Audiencia Nacional ruling reference and ask your gestor to retain it on file in case the AEAT queries the return. Most professional gestors on the Costa del Sol are already aware of the ruling, but it is prudent to confirm that your specific gestor is applying the new position
3. Be prepared for the possibility that the AEAT may initially reject the deductions and issue a complementary assessment. If this happens, your gestor should file an appeal (recurso de reposicion) citing the Audiencia Nacional's judgment. In most cases, the appeal should succeed

For past returns (2021 to 2024)

1. Ask your gestor to prepare and file rectification requests (solicitudes de rectificacion) for all quarterly Modelo 210 returns within the four-year window. Prioritise the earliest periods, as the statute of limitations is running
2. Provide documentation of expenses for each period. Your gestor will need invoices, bank statements, community fee receipts, IBI receipts, insurance certificates, management company invoices, and any other supporting documents for each quarter
3. Agree on fees in advance. Filing rectification requests involves additional work for your gestor, and you should agree on the fee structure before instructing them. Some gestors charge a flat fee per rectification request; others charge a percentage of the refund obtained. Ensure the arrangement is clear and in writing
4. Be patient. The AEAT has six months to respond to each rectification request, and given the volume of claims likely to be submitted, processing times may be longer. Do not panic if you do not receive a response quickly

If you do not currently use a gestor

If you have been filing your own Modelo 210 returns (which is technically possible but not advisable), we strongly recommend engaging a professional tax advisor to handle the rectification claims and future returns. The stakes are now higher — claiming expense deductions correctly requires accurate calculation of depreciable bases, proportional allocation of expenses between rental and personal-use periods, and proper documentation. A professional gestor familiar with the Audiencia Nacional ruling will ensure your returns are optimised and defensible. Expect to pay EUR 150 to EUR 400 per year for Modelo 210 filing services, and EUR 200 to EUR 500 per rectification request.

The Broader Picture: What This Means for UK Property Owners in Spain

The Audiencia Nacional's ruling is part of a broader pattern of Spanish courts recognising that post-Brexit discrimination against UK nationals in property-related taxation is incompatible with EU law. This matters because it establishes a legal framework that extends beyond rental income deductions.

Implications for capital gains tax

When a non-resident sells Spanish property, capital gains are taxed at 19% for EU/EEA residents and 24% for non-EU residents. The same Article 63 TFEU argument that succeeded in the rental income case applies with equal force to the capital gains rate differential. A challenge to this rate differential is expected, and many tax advisors are already advising UK clients who sell Spanish property to file at 19% and prepare for a potential dispute with the AEAT.

Implications for the proposed 100% non-EU buyer tax

The Audiencia Nacional's robust application of Article 63 TFEU to third-country property taxation also has implications for the proposed 100% property tax on non-EU buyers discussed in our comprehensive analysis of the draft bill. Any legislation that discriminates against non-EU capital in the property market faces the same legal obstacle that the AEAT's rental income rules failed to overcome. This does not guarantee that such legislation would be struck down, but it significantly strengthens the legal case against it.

The direction of travel

European tax law is moving toward greater equality of treatment between EU and third-country capital flows. The CJEU has consistently expanded the scope of Article 63 TFEU protection, and national courts — including Spain's Audiencia Nacional — are following suit. For UK property owners in Spain, this is unambiguously positive news. While post-Brexit uncertainty created genuine disadvantages, the legal framework exists to challenge and remedy those disadvantages, and the Spanish courts are proving receptive to those challenges.

Action Plan: What to Do Now

To summarise the practical steps every UK landlord in Spain should take in light of the Audiencia Nacional's ruling:

1. Confirm your gestor is aware of the ruling and is applying expense deductions to your current Modelo 210 returns. If they are not, either educate them or change gestor
2. Compile your expense documentation for 2021 to 2024. Gather every invoice, receipt, bank statement, and record related to the costs of owning and renting your property. The more complete your records, the larger your refund
3. File rectification requests for past returns within the four-year window. Do not delay — the earliest periods are approaching or have passed their deadline
4. Continue to monitor for a Supreme Court appeal. If the government appeals, the ruling remains in force pending the Supreme Court's decision, so continue to claim deductions in the meantime
5. Review your overall tax position. If the expense deductions significantly change the economics of your Spanish rental property, consider whether this affects your investment strategy, pricing, or plans to expand your portfolio
6. Use our property calculator to model the impact of deductible expenses on your rental yield and tax liability
7. Read our UK buyers' guide for comprehensive information on property ownership in Spain as a British national
8. Consult our costs and taxes guide for the complete picture on the fiscal implications of buying, owning, and selling property in Spain

The Audiencia Nacional's ruling does not solve every problem that Brexit created for UK property owners in Spain. The rate differential remains (for now), the bureaucratic friction of dealing with the AEAT as a non-EU national persists, and the broader political environment around foreign property ownership in Spain is evolving. But it does solve the most financially significant problem — the denial of expense deductions — and it does so in a way that is legally robust, practically enforceable, and, for thousands of UK landlords, worth thousands of euros per year.

This is not a theoretical or academic development. It is money in your pocket. Act on it.