Tax deduction for investing in a habitual dwelling in Spain

QUESTION

I am an Irish citizen resident in Spain since 2001 and I bought my first house in July 2003 for 150,000 euros. In order to buy the property, I arranged a mortgage of 100,000 euros payable over 15 years. I paid 50,000 euros in cash and 3,000 euros on the mortgage in 2003.

I would like to know the amount that I can deduct in my tax return this year in respect of the deduction for investment in a habitual dwelling.

ANSWER

For 2003 the 50,000 euros paid in cash plus the 3,000 euros paid on the mortgage, i.e. a total of 53,000 euros, will qualify for the deduction. However, the maximum amount of the investment qualifying for deduction stands at 9,015.18 euros. This will be the limit of your deduction base.

With respect to the deduction rates which are applicable in 2003, in principle, you may qualify for the increased rates envisaged for borrowings (25 per cent of the deduction base up to 4,507.59 euros and 15 per cent of the remainder, in investments made within two years of the acquisition) as the requirements provided to this effect would appear to be fulfilled:

The amount financed with respect to the acquisition value should represent at least 50 per cent of this value.

In the first three years the amount of the loan repaid, taken as a whole, should not exceed 40 per cent of the total amount requested.

When these requirements are met, the increased deduction rates will be applied to all amounts paid, irrespective of whether or not they have been borrowed.

In short, provided that you comply with all the requirements laid down in Personal Income Tax legislation, your deduction for your habitual dwelling for 2003 will amount to 1,803.04 euros (4,507.59 euros x 25 per cent + 4,507.59 euros x 15 per cent).

Lastly, it should be noted that in 2003 the Autonomous Region of Andalucía introduced an additional deduction for those taxpayers whose dwelling is classified as “state-subsidised” or who are under 35. The requirements to be met in this respect are that the habitual dwelling has been purchased after 1 January 2003 and that the taxpayer’s general tax base is less than 18,000 euros. The deduction totals two per cent of the amounts paid for the acquisition. There is, however, a limit of 9,015.18 euros while the maximum to be deducted amounts to 180.30 euros.