Spanish eyes on holiday homes.

Many of us love the idea of a place in the sun. And despite many surveys indicating that Bulgaria, Romania or Estonia are the places to be, Spain is still where many Brits opt for a holiday home.

Thanks to Spain's popularity and easy access, for many there has been the added bonus of being able to rent out the property to friends or holidaymakers and make some spare cash.

But a large number of Britons who let properties have been omitting to tell the Spanish taxman and, after years of turning a blind eye, the authorities are now on the hunt for extra revenue.

A bill to catch foreigners avoiding tax went before the Spanish parliament early last month (March 2006) and even before new legislation comes in, the crackdown has begun.

Having latched on to the opportunity to make some cash from the half-a-million Brits with homes in Spain, the taxman has started hatching cunning plans to snare dodgers.

The authorities have begun searching rental agents' listings, scanning small adverts and talking to local businessmen and hoteliers to find out who is renting out properties and comparing their findings to people who have registered for tax.

And thanks to the internet, the taxman's task has become a lot easier and a lot more lucrative, with holiday rental sites providing rich pickings.

Britons who own Spanish homes but are non-resident in the country should pay two sets of annual taxes.

There is a wealth tax, based on a property's value, and levied on a sliding scale – generally in tranches of e170 and starting at 0.2%.

In addition, there is a notional annual income tax that should be paid even if a property is not rented out, which is based on a percentage of rateable value.

Frank Porral, a Madrid tax specialist for Rastrollo Porral Abogados, says most areas have set the level of this tax at 1.1% of the rateable value, with the taxpayer charged 25% of that figure.

If a property is rented out, a further tax of 25% on actual income should be paid, which can be offset against the notional tax, with income declared within 30 days of the rental period.