Against the backdrop of increasing property investment in the Balearic Islands, the Spanish tax authorities have come under fire for their tax treatment of investments in property improvements and refurbishments.

In many cases, the tax office systematically rejects expenditure on property improvements and categorises them as simple repair and maintenance work. This categorisation prevents owners from deducting these expenses from the sale price of the property, which drives up the increase in value and therefore the tax burden.

It is common for owners to invest considerable sums in improving their property. However, when they try to deduct these expenses when selling the property, they encounter resistance from the tax authorities, who insist on treating these investments as simple repairs. This attitude ignores the full impact of the renovations and assesses the bills in isolation, without taking into account all the benefits they bring to the property.

What is most striking is the inconsistency of the criteria applied by the tax authorities. When it comes to deducting repair costs from rental income, in some cases the tax office argues that these investments increase the value of the property and should therefore be amortised over several years. This contradiction is evidence of an arbitrary interpretation of the tax rules that depends on the convenience of the tax office.

To better understand how an investment in improvements is categorised as opposed to simple repairs and maintenance, we can examine some practical examples. Investments and improvements include works such as the installation of heating, air conditioning or a lift where none previously existed, extension works that increase living space, structural refurbishments that strengthen the integrity of the building and works to improve energy efficiency where their effectiveness can be demonstrated. Repairs and maintenance work, on the other hand, include tasks such as replacing electrical panels, windows and pipes, as well as tiling and flooring in bathrooms and kitchens, renovating worn parquet flooring or the cost of new paintwork. The replacement of existing heating and air conditioning systems, security doors, the complete remodelling of bathrooms and kitchens and the remodelling of interiors without increasing the living space are also included.

In any case, the taxpayer must prove that the expenditure incurred corresponds to an investment or improvement. This requires the submission of clear and detailed supporting documents such as building permits, technical projects, photographs of the progress of the work, itemised invoices reflecting the cost of each intervention, documents proving the previous absence of certain installations and energy efficiency certificates comparing the state before and after the intervention. Only with proper and exhaustive documentation can it be ensured that the tax authorities recognise these expenses as investments in improvements and not as mere repairs.

Professional advice is crucial in these cases. Property owners who wish to invest in their properties should be aware of the potential tax implications and be supported by legal experts who can represent their interests to the tax authorities. The right advice not only helps to avoid unpleasant surprises, but can also be crucial in challenging unfair decisions before the relevant courts.

All in all, the current situation emphasises the need for greater clarity and consistency in the application of tax rules. In the meantime, the support of specialised professionals can make the difference between a profitable investment and a costly confrontation with the tax authorities. Defending taxpayers’ rights and seeking justice in these cases not only benefits individual property owners, but also boosts confidence in the tax system and promotes a fairer and more predictable investment environment in the Balearic Islands.