Why it’s important to have a Mortgage in Spain?
I will give a brief overview of the importance of having a mortgage in Spain and one of the reasons is that you will pay more in taxes than is necessary and particularly if you are classed as a non resident in Spain.
The money you borrow on a mortgage the better and in particular an Interest Only Mortgages because the original debt is not paid back at all, and the mortgage remains the same throughout the term of the mortgage. This means overall that you will pay more interest over the agreed term, but your monthly repayments will be much lower than a repayment mortgage. “Why is this good� I hear you ask!
Well, having an Interest Only mortgage can be used to mitigate the inheritance tax laws in Spain because the equity in the property is reduced by the mortgage debt charged against it. For instance, let’s say your property is worth about € 300,000 and it has a €150,000 mortgage against it. Then the tax man can only levy on the € 150,000 of the remaining equity. So the larger the mortgage then the less tax man will get.
Many people come to live in Spain maybe to retire in the sun or work and run a business but many don’t understand the Spanish taxation system and are genuinely shocked when they find out that it’s completely different to the UK. The best thing to do is to speak with a financial Adviser or an Accountant soon after your arrival in Spain and they will explain the tax regime so that you can avoid all the pit falls that so many people find themselves in. Better still speak with one before you decide on your purchase!
If you are going to live in Spain permanently then as a resident you will have to file a full tax return every year. The tax year starts January to December and you need to file a return between May 1st to June 30th the following year. This process will result in you receiving your tax certificate and you will need this at the Notary for any property transaction and this will ensure that you get all the tax breaks on offer to Residents.
Failure to produce this tax certificate means you will be treated as a Non Resident and even having a "Residency Card" will no longer be sufficient to prove you are a resident. As a resident you will be entitled to reasonably good allowances against inheritance tax in some provinces, for example in Valencia the allowance can be over €170,000 per person subject the conditions but in some other areas the allowances are much less generous and so it’s very important that you take steps to protect yourself as soon as possible.
It’s a different story for Non Residents who may own a holiday homes and only spend short periods a year in Spain as they will only get small allowances but there are ways to avoid against this and again, it’s having a mortgage on your property, preferably, an Interest Only Mortgage!
As I said earlier this is only a very brief overview of the Spanish taxation system and just like the UK it is a very complicated subject and it is always best to seek professional advice. Remember, forewarned is forearmed!!!
Rosemary@simplespanishmortgages.com
WEBSITE = simplespanishmortgages.com
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