17 May HOW DOES THE MORTGAGE FLOOR RATE CLAUSE (MINIMUM RATE OF INTEREST CLAUSE) AND THE MORTGAGE FORMALIZATION EXPENSES MAY AFFECT YOUR TAX RETURN IN SPAIN?

 May is one of the most relevant months in terms taxes in Spain, especially thanks to IRPF (personal income tax), so in this entry we wanted to tell you some important aspects when presenting your income tax return.

This year we have been part in numerous court proceedings in which judgments have condemned the Bank to the return of both the “mortgage floor rate” (Minimum rate of Interest) and the mortgage formalization expenses and, after the initial joy of obtaining the satisfactory amount, the question is how to declare  these amounts in your income statement.

We will distinguish between the amounts recovered by the Judicial Judgment with respect “mortgage floor rate” (Minimum rate of Interest) and the amounts recovered by the improper payment of the expenses of formalizing the mortgages.

With respect to the latter, we can say that it will not count as a return or profit for the taxpayer considering that they should not have been paid at any time, so it is not configured as an income but as a restitution to the initial situation, that is, they should not be included in the income statement, meaning the year in which the loan was constituted as the year in which they were paid.

We just have to highlight a nuance, and that is that these recovered amounts would have benefited from deductions in the year in which the house was bought, that is, if in 2015 I bought a house and I write off the usual expenses In order to formalize the loan, I must regularize this situation, since I should not have made this payment since there would have been no taxable base to benefit from possible deductions. This de-taxed amount of the rent is what we must include in the exercise of this year’s tax plus the corresponding interest for late payment,

With regard to the amounts charged by the “mortgage floor rate” (Minimum rate of Interest), the picture is the same, as they are amounts that should not have been paid, the return of these is not considered an income or a return, unless, as is the case with the expenses of Mortgage formalization, that these amounts have been base deductions as in the case of rented homes.

However, at this point there are differences between two scenarios given by Royal Decree-Law 1/2017, of 20 January, on urgent consumer protection measures in the field of land clauses.

In the first place, when the monthly payments in which the floor clause was included have been subject to deductions for investment in habitual or autonomous housing, the amounts deducted in the fiscal year in which the judgment was made must be included, but without interest for late payment. (This is the same scenario as when you lose the deduction for a habitual residence, but in this case without including interest for late payment).

Second, if you have included, in statements of previous years, the amounts received as deductible expenses of the real estate returns, that is, if you have deducted the monthly rent for housing, they will lose such consideration should be submitted supplementary statements of the corresponding exercises, removing said expenses, without penalty, late interest or any surcharge.

Third, if your bank, instead of paying you in cash, the amounts corresponding to the interest rate limits are used to amortize the loan’s capital if it is still in force, you will not have to pay back the deductions made. If only part of the return is used for depreciation, for the amount not used to amortize, the corresponding deduction must be returned. Given that the maximum limit of the deduction base for investment in housing is 9,040 euros, it will be necessary to check for each of those years in which the deduction was applied, whether or not this limit operated.

Finally, notice that only the above will apply to the exercises in respect of which the Administration’s right to determine the tax debt has not been prescribed, that is, you should only return the deductions unduly made in the last 4 years.

If you have any questions or doubts about which concepts should be included in your income tax return or if you have not yet claimed your floor clause or the mortgage payment expenses, in Navarro Llima Abogados S.L we will be happy to advise you what is best It fits your needs.

Estela Baztán Amills

Lawyer