If you do then you could be paying more tax than you need to Spanish tax on holiday rental income.

If you own property in Spain then whether you are resident or non-resident in Tenerife you should be paying Spanish income tax on any rental income that you receive.  Furthermore, unless that property is in a registered Spanish business you are not allowed to offset any property running expenses against its income except for a small proportion of any applicable mortgage interest.  Income tax in Spain is currently 24%.
Partly for this reason, many people do not declare that income in Spain and so are running the risk of fines and a considerable back tax bill.  The Hacienda can claim tax retrospectively for 4.5 years under the Spanish Statute of Limitations on Taxation unless they can prove that the non-declaration was done with criminal intent.  If this is the case then there is no Statute of Limitations.
The good news is that there is an alternative.   
If you transfer your property into a UK resident Limited Liability Company then that company will pay its tax in the UK.  As company shareholders and directors the property owners suffer no loss of control over their property and can rent it out, sell it, raise money on it just as they do under personal ownership.  
The UK Corporation Tax rate is 21% and the company would pay that on the rental income less all allowable ownership expenses - bills, Community Fees, mortgage interest, insurance etc, even some flights to and from the UK for the company directors and car hire whilst visiting your property.
Take the following example:
 A villa in Tenerife might take rental income from tourists of 40,000 euros in one year.  Say it has mortgage costs of 20,000 euros and other running expenses amounting to 8,000 euros per annum.  If only 9,000 euros of mortgage interest could be offset against tax then the amount of Spanish Income Tax due would be 7,740 euros.  If the property was in a UK company then the UK Corporation Tax due would be 21% on the £ equivalent of 12,000 euros.  At an assumed exchange rate of 1.1 this means tax due would be £2,291.  That is an annual tax saving of £4,745.   
The transfer of your property into a UK Company is a simple procedure that will incur no National Transfer Tax (6.5% in the Canarias Region) and no Spanish Capital Gains Tax.  Furthermore, owning your Spanish property in a corporate structure provides protection against Spanish Inheritance Tax for your non Spanish tax resident beneficiaries (a tax that can be extremely onerous depending on your circumstances) and can be beneficial in reducing your UK Inheritance Tax and Capital Gains Tax liabilities.
The website where you can find out more and register for a free personal illustration demonstrating the potential Spanish Inheritance Tax liability of your beneficiaries (including your spouse) can be found at www.winchamiht.com .  Alternatively contact Rachael Bayliss on Telephone: 0034 922 781 285 or mobile: 0034 699 597 082
E-Mail:   This e-mail address is being protected from spambots. You need JavaScript enabled to view it  
This information has been supplied by Rachael Bayliss - the Spanish Tax Consultant for Wincham Consultants Ltd in Tenerife.

Appears in: Fortnightly edition 392 Tenerife News