Recent Spanish case law has created a significant opportunity for non-resident property owners who are resident outside the European Union (EU) and the European Economic Area (EEA). A decision of Spain’s National Court (Audiencia Nacional) has challenged the long-standing approach that prevented non-EU/EEA non-residents from deducting expenses when declaring Spanish rental income under Non-Resident Income Tax (Impuesto sobre la Renta de no Residentes, “IRNR” /NRT).

Until now, non-resident taxpayers from countries such as the United Kingdom, the United States, Canada and Australia were generally required to pay IRNR at 24% on gross rental income derived from Spanish property, without the ability to deduct property-related expenses. By contrast, EU/EEA residents have been able to compute the taxable base on a net basis by deducting eligible expenses. This often results in a materially higher tax burden for non-EU/EEA taxpayers, even where rental margins are modest.

The National Court has held that this differential treatment may be incompatible with the principle of free movement of capital and with non-discrimination standards recognised under European law. On that basis, non-EU/EEA non-residents may be entitled to claim expense deductions when calculating IRNR on rental income, in a manner comparable to EU/EEA residents. However, while the decision is a strong precedent, it is not yet a binding settled doctrine, and it has been reported as appealed to the Spanish Supreme Court. Until the Supreme Court confirms this approach or the legislation is amended, the Spanish Tax Agency is unlikely to allow expense deductions to be applied routinely in filed returns without challenge.

A key practical consequence is the potential to reclaim overpaid tax. Spanish law generally allows taxpayers to seek a refund (through rectification) of incorrect tax payments made within the last four years. Non-EU/EEA property owners who have filed IRNR returns without deducting eligible expenses may therefore be able to request repayment of overpaid amounts, subject to supporting documentation and evidence.

Although the position may continue to develop as litigation progresses, many taxpayers are already preparing protective refund claims in order to preserve their rights within the limitation period.

At Konsell Abogados y Asesores, we have been preparing IRNR/NRT filings for international clients for many years. We handle annual rental income declarations for non-residents and represent clients before the Spanish Tax Agency. In light of this development, we can review prior IRNR/NRT filings, quantify potential overpayments, and submit refund applications for tax paid in excess. We also provide ongoing compliance support and planning so that future filings reflect the most favourable defensible position available under the evolving framework.

For expats and overseas property owners, this ruling is particularly relevant if you rent out Spanish property, have paid IRNR /NRT on gross rental income, or are considering investing in Spanish real estate. It may improve the net return on your investment and enable recovery of tax previously paid under the former approach.

We recommend that affected property owners obtain a professional review of their tax position to determine whether refund opportunities exist and to ensure that future compliance reflects this evolving legal landscape.