Owning a second home in Spain is a dream for many expats and retirees, but it also brings tax obligations that can be confusing, especially for non-residents. Now, those rules could soon change.

The European Commission has launched proceedings against Spain over how it taxes non-resident property owners, arguing that the current system violates EU law by treating them less favorably than residents.

What is the imputed income tax?

Spain’s imputed income tax assumes that owning property provides a financial benefit (such as saving rent) and taxes that “notional income,” even if the property isn’t rented out.

It’s calculated as 2% of the property’s cadastral value (or 1.1% if updated in the past decade). Spanish residents are exempt for their main residence, but non-residents must pay it even if the Spanish property is their only or primary home abroad.

This tax is declared through Modelo 210, part of the Non-Resident Income Tax (IRNR).

Why the European Commission is intervening

Brussels argues this setup breaches EU principles of free movement of workers and capital. Non-residents face higher taxation than residents in equivalent situations, which the Commission says discourages cross-border mobility and investment.

Spain is pending response to the Commission’s formal notice as of this writing. If it doesn’t provide a satisfactory explanation, the case could go before the Court of Justice of the European Union (CJEU).

Spain’s argument

Spanish authorities insist the system isn’t discriminatory. They argue that:

• Residents pay imputed income tax on foreign properties, and

• Non-residents pay the same on properties in Spain.

In their view, both groups are treated consistently. But the Commission disagrees, pointing out that non-residents who live in their Spanish home full-time cannot claim the same exemptions as residents, creating practical inequality.

What might change

If the CJEU rules in favor of the Commission, Spain would likely need to:

• Amend the Non-Resident Income Tax (IRNR) and Personal Income Tax (IRPF) laws.

• Allow non-residents to prove that their Spanish home serves as their habitual residence, even without full Spanish tax residency.

That would align Spain’s tax rules with EU equality standards and could reduce the tax burden for many foreign homeowners.

Can you claim a refund?

Not yet… but possibly in the future.

If the EU eventually rules against Spain, affected non-residents could claim refunds for overpaid taxes in recent years. However, refunds would depend on Spain’s response and how the court’s decision is implemented.

Practical tips for expats and non-residents

While the rules haven’t changed yet, it’s wise to stay prepared:

• Keep tax records: Save all Modelo 210 filings, receipts, and property tax (IBI) documents for the past four years.

• Verify cadastral value: This determines your imputed income calculation—check it via your property’s recibo del IBI.

• Consult a tax advisor: Especially one familiar with cross-border tax issues and refund claims.

• Monitor EU updates: Legal changes could open opportunities for reimbursement or exemption.

The bottom line

The case underscores growing pressure on Spain to align with EU tax fairness standards. For now, non-residents must continue paying imputed income tax as usual, but if Brussels succeeds, many expats could eventually benefit from lower taxes, or even refunds.