The recent modification of the legislation on tax due on mortgage loans

As many of our readers may be aware, there have been many articles in the news recently about the so-called ‘Impuesto de Actos Juridicos Documentados’ that is levied when a loan with a mortgage guarantee is constituted by virtue of a deed granted before the Notary and subsequently registered in Land Registry. In many other European countries, this tax does not exist or if it does, the actual rate of tax is much lower than in Spain where the tax was initially regulated in an act of legislation dating back to 1993.

Article 8 of the said act of legislation, establishes that in the event of the constitution of real rights or in the event of the constitution of loans of any sort, the tax payer would be considered to be either the person in whose favour the right were constituted or the borrower in the case of the constitution of a loan.

Article 8 is also complemented by article 29 of the same act of legislation, which states that:

“The payer of the tax will be the acquirer of the asset or right or, the absence of an acquirer, the persons who applies for the granting of the notarial documents or the persons in whose interest the said documents are issued”.

This has given rise to the argument that it should be the bank that should pay the tax as the mortgage guarantee constituted as a charge in Land Registry guarantees the bank’s loan and as such, it is the bank that has the overriding interest in the constitution of the guarantee.

However, in addition to acts of legislation, the Government also publishes regulations, which complement and regulate in finer detail the matters broadly dealt with in the main acts of legislation. In the case of the Transmission Tax Statute, a subsequent regulation was published on May 29, 995.

Article 68 of the said regulation confused the issue of the identity of the taxpayer in the case of a loan with a mortgage guarantee due to it establishing that

“…. in the event of deeds constituting loans with guarantees, the borrower will be considered as the acquirer …”. This article seems to contradict article 29 of the Statute and for the last 25 years, the accepted legal precedents of the High Court have ruled in favour of the borrower paying the tax due on the constitution of a loan with a mortgage guarantee.

However, last October a High Court judgement overturned the previously accepted interpretation of the identity of the taxpayer and ruled that the lender should be liable for the payment of the tax. Less than 3 weeks later, and after another ruling issued by 28 Judges of the division of the High Court that deals with fiscal matters, the precedent was reversed and the High Court went back to considering that the borrower was liable for the payment of the tax.

As a result of the judicial controversy, the government reacted by immediately passing a new act of legislation by virtue of which the original wording of the Law was modified and finally a specific reference to loans with mortgage guarantees was inserted to clarify the matter once and for all. The amendment to the statute now reads as follows:

“Article 29: The tax payer will be considered to be the acquirer of the asset or right, and in the absence of an acquirer, the persons who apply for the granting of the deed or the persons benefited by its granting.

In the case of the granting of deeds constituting loans with mortgage guarantees, the tax payer will be considered to be the lender”.

Finally, after 25 years of permitting the borrower to pay this tax, both of the main political parties are now suddenly in favour of it being eliminated or modified so that the borrower is no longer liable for payment. Although there would now seem to be a specific wording which removes all manner of doubt concerning who is liable to pay the tax due on loans with mortgage guarantees, it has subsequently become apparent that due to a total exemption on the payment of ‘actos jurídicos documentados’ by cooperative saving banks, there may still be some margin for debate in the specific case of a mortgage loan granted by this type of entity.