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HomeLatest NewsThe deduction for housing (a lawful measure) | Opinion Felix Bornstein

The deduction for housing (a lawful measure) | Opinion Felix Bornstein

Date: April 21, 2024 Time: 20:42:03

Law 16/2012 abolished, with effect from January 1, 2013, the deduction in personal income tax for investment in habitual residence. There was no doctrinal justification to liquidate a deduction that had been in place since January 1, 1979. However, if I am a realist, it cannot be denied that the best justification was then, as it is every day when The sun rises, the state of necessity. In 2012, public finances were going through a calamitous situation that required the use of a chainsaw. The time for fiscal consolidation and the end of the expansive tax policy that the popular and socialists had been practicing since 1995 had sounded. The fun ended and the commander ordered it to stop.

However, the State could not ignore that the habitual residence constitutes the lion’s share of the savings of the vast majority of Spanish families. Nor could he ignore that it is a long-term investment that most Spaniards can only undertake through external financing, generally through the granting of a bank loan whose repayment is guaranteed by a mortgage on the same home that was purchased. Acquire thanks to financial credit. For this reason, the regulation that abolished the deduction with a view to the future conservation for previous purchasers, in the existing legal terms as of December 31, 2012. The technique used was to “embed” a transitory provision in the Personal Income Tax Law ( in this case the 18th) which, once years later, is still in force. In order not to lengthen this article unnecessarily, I refer the reader interested in knowing the requirements and conditions that make it viable to maintain the practice of deduction to the aforementioned 18th transitory provision.

Since 2013, the application of the deduction has been a simple and routine task. But recent circumstances that have burst onto the financial scene with overwhelming force are asking us about the possibility of changing our conduct and choosing “option economies” that are more advantageous to our investment in housing. In June 2022, the European Central Bank began a dizzying ascent in its interest rate policy. Its translation to home purchase reveals that, at this time, the average mortgage payment devours 32% of household income. The Spaniards who signed a loan deed referenced to the Euribor are being “beaten” by the upward revisions of the mortgage interest carried out by the credit entities.

Is there an alternative to mortgage financing? To continue enjoying the personal income tax deduction, can we replace the bank credit with another type of external financing that is less onerous for our pockets? Can we even resort to family help, paid or not, to get out of the hole? The Directorate General of Taxes (DGT) has just pronounced (CV0222-23, of February 13) on these issues. The consultant, who had acquired his habitual residence in 2007 thanks to a mortgage loan, had asked the senior management body if he could keep the personal income tax deduction in the event that, to pay the outstanding balance, he resorted to a family member’s credit, canceling the bank loan.

In its binding challenge, the DGT starts from the premise that the Tax Law does not establish any type of restriction regarding the origin of the financing. In the same way, the Law does not require the delivery of a guarantee regarding the repayment of the credit, nor does it prevent the loan from being granted by a family member of the borrower. In this case, as in all cases of external financing, the deduction will be made as the principal of the credit is repaid and the corresponding interest is collected, where appropriate. In other words, the loan granted by a relative can be free (with which the lender would not accrue any return on capital subject to personal income tax). The Tax Law presumes the onerousness of capital transfers, but this presumption can be enervated by the evidence of the free family loan that, if subsequently required by the Tax Agency, puts on the table the taxpayer-borrower .

The resolution of February 13 says: “The novation, subrogation or substitution of a loan or credit for another, even its extension, whatever the agreed form with the guarantees and conditions that any of them have, does not entail understanding that at that moment the investment financing process concludes and [por tanto] the possibilities of practicing the deduction are not exhausted […] provided that the resulting loan is effectively dedicated to the amortization of the previous one.”

And It Continues: “Different Question Series An Assumption of Cancellation, Total or Partial, of the Debt And A Subsequent Obtainment of Credit, Even with the guarantee of the Cited well IS OR THE SAME Amortization Period of the remaining outstanding, without concatenation between both . which will determine [sic] that it will be necessary to understand that operations are different and would imply the loss of the right to practice the deduction for habitual residence…”. Consequently, the investor may continue to apply the deduction (maximum base of 9,040 euros per year) in his personal income tax return, including the expenses caused by the change in financing.

Of course, the taxpayer will have to prove the connection of the two loans to the Tax Agency. Not spontaneously at the time of filing the personal income tax return, but in response to a hypothetical previous administrative requirement. In Identical, the resolution of the DGT (CV0243-23), of February 14 sense. With the added value that, on this occasion, the DGT analyzes the indirect taxation that taxes the acts necessary to replace one loan with another, in the field of the Tax on Patrimonial Transfers and Documented Legal Acts (ITPAJD). In this sense, the constitution of a loan (with or without interest) is subject (by the concept “onerous patrimonial transfers”). Notarial deeds granted to cancel a mortgage are also taxed (for the concept of “documented legal acts”). However, both operations enjoy exemption in the ITPAJD.

Long live the exemption! It is the perfect solution for a family loan. It is not taxed, it has no expenses and, as if that were not enough, the registration of the private loan contract in the registry of the corresponding autonomous community attests to its existence before third parties, such as the Public Treasury (article 1,227 of the Civil Code).

* This website provides news content gathered from various internet sources. It is crucial to understand that we are not responsible for the accuracy, completeness, or reliability of the information presented Read More

Puck Henry
Puck Henry
Puck Henry is an editor for ePrimefeed covering all types of news.
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