On the one hand it looked like good news when the Spanish Supreme Court ruled that banks, rather than borrowers, should pay the tax that arises from notarising and inscribing a mortgage deed. This legal decision overturned a previous ruling that took a very different view and put the onus on the borrower to pay these fees. However, upon appeal, it was then overturned by the Supreme Court, causing disappointment and confusion before the government finally stepped in and ruled that from now on it would indeed be the lenders – not buyers – who’d have to pay the Stamp Duty tax.
For 23 years borrowers have had to pay the Stamp Duty tax on mortgages. This is called the Actos Jurídicos Documentados (AJD), which is a tax comprising fixed and variable costs, determined by each autonomous region, rather than central government. In general, this tax is in the range of 0.5% to 1.5%, which is a significant difference, and is applied to the total value of the mortgage, including costs and interest payments. Consequently, the taxable value is higher than the actual mortgage value. To give you an example: the AJD tax on a €100,000 mortgage could cost a borrower anything from €675 to €3,000, but should be much lower if it was just based on the face value of the mortgage. Clearly, this is a big expense for borrowers, and removing it from the buying budget would make property transactions far less expensive.
However, the path to this recent ruling has been anything but simple. In 2015, a civil tribunal of the Supreme Court ruled that banks should pay the Stamp Duty. It was the first time such a decision had been reached. Unfortunately, this was then followed by a series of contradictory rulings that this most recent one was supposed to correct and make the position clear to all. The result was the opposite of clarity.
When the ruling was announced, Spanish banks stocks took the brunt of it and plummeted. Furthermore, the Supreme Court president only heard about the decision on the news, creating a view that the institution’s management is inconsistent. The president then took a decision, without any consultation, to suspend all cases relating to payment of AJD until after 5th November. Fortunately, prime minister Pedro Sanchez stepped in in favour of consumers to create clarity out of a situation of growing confusion. Buyers will welcome both the fact that they won’t have to pay AJD, and relief that the uncertainty has finally come to an end.