How can I reduce my taxes with a Spanish mortgage?

Want to reduce your taxes? Of course you do! Here we explain some of the tax benefits of getting a Spanish mortgage. Let’s dive right in! 

How can I reduce my taxes with a Spanish mortgage?

How does getting a Spanish mortgage reduce my taxes?

It is possible to reduce the amount of tax you are liable to pay by taking out a mortgage on your Spanish property. When paying your taxes, the value of the property will be reduced by your mortgage amount. However, this is only if a mortgage is in place at the time of purchasing the property.

Even if you have the funds for the entire purchase of your property, it may be a wise decision financially to get a mortgage, as with one you can save on taxes. It’s also important to remember that it is difficult to release equity in Spain once you have purchased a property.

4 benefits of taking out a Spanish Mortgage:

  1. Low interest mortgage rates in Spain allow you to make the most of your funds so you can maximize the return on your investment.
  2. Getting a mortgage in Spain allows you to have more liquidity for other investments.
  3. Wealth taxes can be reduced by getting a Spanish mortgage.
  4. Inheritance taxes can also be reduced.

So, what is the wealth tax in Spain?

The wealth tax is paid by both residents and non-residents on certain assets they hold in Spain. Many expats are surprised to discover that they have to pay this tax every year and individually (i.e not as a couple).

For Spanish residents, the tax is a levy that is applied on an individuals worldwide assets. For non-residents, it is only the assets that are held in Spain that are taxed. Assets such as property, cars, art, jewellery and savings are all included in wealth taxes.

Different regions in Spain have different allowances. For instance, Madrid has a 100% allowance for the wealth tax for residents. Therefore, it is important for non-residents to remember that regardless of where they are living in Spain, the general wealth tax will still apply to them.

So, if you have substantial wealth and own property in an area of Spain that has allowances for this type of tax, it may be worth considering applying for your Spanish residency. Apply for Spanish Residency with HomeFinance Spain.

How will a mortgage reduce my liability to pay wealth taxes?

Luckily, there are deductions to be made for the wealth tax. Homeowners who have taken out a Spanish mortgage can deduct the loan value from the net value of their assets. This can either reduce the amount of wealth tax one must pay or bring an individual under the threshold for having to pay any wealth tax at all. A mortgage on a property in Spain can therefore allow for substantial savings!

How does a Spanish mortgage reduce the amount of inheritance tax my beneficiaries will have to pay?

A mortgage reduces inheritance tax as under Spanish law, mortgage debt against a property is deductible for inheritance taxes. Only the free equity, the portion of the mortgage that has already been paid off, is taxed. 

So, if your property is worth €180,000 and you have €100,000 left on your mortgage to pay, only the free equity (the €80,000) is taxable for inheritance.

Let’s recap the main 4 benefits of a Spanish Mortgage

  1. Tax benefits: As we have discussed, inheritance and wealth taxes are reduced by taking out a mortgage. Mortgage interest and property taxes can also be deducted from your annual income taxes!
  2.  Increase your credit score: Paying your mortgage on time, every month results in a good credit score and shows future lenders that you are a responsible borrower.
  3. Mortgage as a budgeting and savings tool: Knowing what your payments will be every month allows you to plan and budget for the future. A mortgage is also a forced savings plan, once you have paid off your mortgage you will own the property and can sell the property to plan your retirement or leave it to your family.
  4. Borrowing power: The equity you put into purchasing your property, added with each mortgage payment you make, increases your borrowing power.

Over to you...

Now we have discussed the tax benefits, you should have a good understanding as to why it may make financial sense for you to apply for a mortgage in Spain. After carefully considering your finances, we recommend you factor in the possible advantages of taking out a mortgage. Of course, the decision is yours – but if you need help or advice, we are here to help!

For more information see – Non-Resident Spanish Mortgages and Resident Spanish Mortgages for Mortgage Calculators and Frequently Asked Questions. 

Apply for a Mortgage with HomeFinance Spain

Our team of mortgage brokers are ready to help and answer any questions that you might have. HomeFinance Spain can explain the mortgage procedure and will ensure you get the best mortgage deal to suits your specific requirements. Get in touch today by calling (0034) 96 682 11 72 or by filling in the contact form provided.

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  • Non Resident Mortgages
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