The Spanish Directorate of Taxes confirms that the subrogation of the mortgage debtor as a result of the acquisition of the mortgaged property is not subject to Stamp Duty
In a recent binding tax ruling submitted by Ashurst for one of our clients, the Spanish Directorate of Taxes has ruled that a public deed documenting the subrogation of the mortgage debtor, in the context of a mortgaged property sale, is not subject to the variable rate of Stamp Duty (without prejudice to the Stamp Duty triggered in the sale itself, which is not controversial). This tax ruling provides clarity and legal certainty for property sales involving the substitution of the mortgage debtor.
Context of the tax ruling
The Spanish Transfer Tax and Stamp Duty Act establishes the requirements for a document to be subject to variable rate of Stamp Duty. These requirements include: being a first copy of a notarial deed (escritura o acta notarial), having a valuable economic content, documenting acts or contracts that can be registered in public registers, and not being subject to Spanish Capital Duty, Transfer Tax or to Inheritance and Gift Tax.
Ruling of the Spanish Directorate of Taxes
The Spanish Directorate of Taxes has concluded that the subrogation of the mortgage debtor, carried out in a public deed in the context of a property sale, is not subject to variable rate of Stamp Duty. The reason is that such subrogation ‘does not give rise to a registration other than that resulting from the transfer of the property itself’, since ‘the only registrable transaction is the change of ownership of the property transferred that secures the mortgage’. Therefore, the mortgage itself remains unchanged.
Importance of the tax ruling
This ruling puts an end to the uncertainty generated by the Spanish Supreme Court judgment of 20 May 2020 and the subsequent responses to binding tax rulings issued by the Spanish Directorate of Taxes, which, in the context of operations to release co-debtors following the termination of a co-ownership or the dissolution of a marriage in community of properties (sociedad de gananciales), had led to the conclusion that the subrogation of the mortgage debtor as a result of the acquisition of the mortgaged property could also be subject to Stamp Duty.
The recent clarification confirms that the subrogation of the mortgage debtor, in itself and in the context of a sale of real estate, does not meet the registration requirement necessary for the application of the variable rate of Stamp Duty.
Relevant implications for the real estate and banking sectors
This tax ruling provides legal certainty for taxpayers, while facilitating the normal course of real estate sales transactions involving the subrogation of the buyer in the seller's position as debtor in relation to a mortgage loan over the property being transferred.
This is particularly relevant for the real estate and banking sectors, where such transactions are common both in the business environment and in sales to individuals.
