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Property portals and rental platforms to pass on landlord details to the Spanish tax Authorities. Are you prepared?

Raymundo Larraín Nesbitt, January, 7. 2019

HomeAway, AirBnb and other property portals and estate agencies have been busy informing their clients they will disclose all their tax details over to the Spanish Tax Office in 2019, retroactively as from the 1st of Jnauary 2018. Are you up to date with your Spanish taxes? Have you been declaring and paying tax in Spain on your rental income? We file taxes all over Spain.

Blog post copyrighted © 2018 and 2019. Plagiarism will be criminally prosecuted.

 

By Raymundo Larraín Nesbitt
Lawyer – Abogado
7th of January 2019

You may have received last December 2018 an email from your property portal or estate agency similar to this one.

Property portals have been scrambling to send frantic emails over the last month to expat clients (‘hosts’, in their terminology) informing them that going forward they will be passing on all their tax details over to the Spanish Tax Authorities as from the 1st of January 2019. They will request you complete a tax form that will be relayed over to the tax office. If you fail to comply, you will no longer be allowed to do business with them.

So what does all this even mean? It means that estate agents and property portals have been forced to turn into whistleblowers reporting all your rental income under threat of heavy fines.

The reason is because new tax laws now force estate agents and property portals to pass on all your (rental) tax details over to the Spanish Tax Office under threat of humongous fines up to €600,000. Property portals and agents must submit a new quarterly tax form (number 179) to the tax Authorities with very detailed information on all their client’s rentals. If you have been renting out in Spain your property over the last year, and have not declared and paid tax on your income, chances are the tax office already knows about it and you are going to be fined.

The details passed on to the tax Authorities will be retroactive as from the 1st of January 2018. However, this does not preclude the fact that the Spanish Tax Office is entitled to collect taxes going back four years (statute of limitations).

In Spain, when you rent out a property you are taxed at source.

In other words, you need to declare and pay taxes on your rental income in Spain, not elsewhere i.e. in your home country. Depending on whether there is a double taxation treaty in force with your home country (i.e. such as with the UK and the RoI), your national tax office will give you tax breaks on the tax you have already paid in Spain.

On being non-resident and owning property in Spain, you are liable for the following two taxes:

  • As a non-resident, when you own property in Spain you should be paying an annual end-of-year tax called Non-Resident Imputed Income Tax (even if you do not rent out your property). More information on this tax here: Non-Resident Imputed Income Tax (Fiscal Representation Service) – 8th October 2018
  • If you do rent out your Spanish property, either long-term or as a holiday letting, you must file in addition to the above, a quarterly income tax declaration. Generous landlord tax relief is available for all EU-residents. More information on this quarterly income tax here: Holiday Rental Taxation in Spain – 8th July 2018.

 

The most interesting part of our taxation service is that if you are EU-resident we can bring down your tax bill by an average of 70%. Ask us.

We offer two different taxation services which are very competitively priced. The service is provided always by native English-speaking lawyers and economists.

Fines for non-payment of tax on rental income range from 50 to 150% of the undeclared amounts, plus delay interests.

Any unpaid tax can be placed as a charge against your Spanish property.

If you are not up to date with your Spanish taxation, don’t procrastinate any longer; contact us ASAP and see how we can help you out. Be pro-active, do not allow the Spanish taxman slap you a huge fine in 2019!

 

We offer the most competitive fees in the market. We file taxes all over Spain.

Non-Resident Imputed Income Tax (Fiscal Representation Service) €90/year

Holiday Rental Accounting Service (HRAS) 100/tax quarter

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Tax & legal services available from Larraín Nesbitt Lawyers:

 

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Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Seasons Greetings

Raymundo Larraín Nesbitt, December, 28. 2018

From Larrain Nesbitt Lawyers we wish all our friends and clients a Merry Christmas and a Happy New Year.

The law firm will now remain closed for the holiday season and will reopen its doors on Monday the 7th of January 2019.

Online service will remain open for urgent queries only.

 

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Did you get an email from AirBnb or HomeAway over your Spanish tax details?

Raymundo Larraín Nesbitt, December, 20. 2018

AirBnb and other property portals have been busy informing their clients that they will disclose all their tax details over to the Spanish Tax Office. Are you up-to-date with your Spanish taxes? Have you been declaring and paying tax in Spain on your rental income? We file taxes all over Spain.

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
21st of December 2018

 

Property portals have been busy sending emails over the last week to expat clients (‘hosts’, in their terminology) informing them that going forward they will be passing on all their tax details over to the Spanish Tax Authorities as from the 1st of January 2019. The details passed on to the tax Authorities will be retroactive as from the 1st of January 2018. However, this does not preclude the fact that the Spanish Tax Office is entitled to collect taxes going back four years (statute of limitations).

In Spain, when you rent out a property you are taxed at source. In other words, you need to declare and pay taxes on your rental income in Spain, not elsewhere i.e. in your home country. On being non-resident and owning property in Spain, you are liable for the following two taxes:

  • As a non-resident, when you own property in Spain you should be paying an annual end-of-year tax called Non-Resident Imputed Income Tax (even if you do not rent out your property). More information on this tax here: Non-Resident Imputed Income Tax (Fiscal Representation Service) – 8th October 2018
  • If you do rent out your Spanish property, either long-term or as a holiday letting, you must file in addition to the above, a quarterly income tax declaration. Generous landlord tax relief is available for all EU-residents. More information on this quarterly income tax here: Holiday Rental Taxation in Spain – 8th July 2018.

 

The most interesting part of our taxation service, is that if you are EU-resident we can bring down your tax bill by an average of 70%. Ask us.

We offer two different taxation services which are very competitively priced. The service is provided always by native English-speaking lawyers and economists.

Fines for non-payment of tax on rental income range from 50 to 150% of the undeclared amounts, plus delay interests. Any unpaid tax can be placed as a charge against your Spanish property.

If you are not up to date with your Spanish taxation, don’t procrastinate any longer; contact us ASAP and see how we can help you out.

Be pro-active, do not allow the Spanish taxman to slap you a huge fine in 2019!

 

We offer the most competitive fees in the market.

Non-Resident Imputed Income Tax (Fiscal Representation Service) €90/year

Holiday Rental Accounting Service (HRAS) 100/tax quarter

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal & tax services available from Larraín Nesbitt Lawyers:

 

Holiday lettings taxation-related articles

 

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Non-Resident Imputed Income Tax end-of-year reminder (NRIIT)

Raymundo Larraín Nesbitt, December, 4. 2018

The clock is ticking. This is your last chance to file your Non-Resident Imputed Income Tax for year 2018. If you are non-resident and own property in Spain - even if you do not rent it out - you need to file this end-of-year tax. We file taxes all over Spain.

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
7th of December 2018

 

The end of 2018 fast approaches.

One of our last blog posts for this year, is a gentle tax reminder.

All non-residents, who own property in Spain, need to file by the end of this year a tax called Non-Resident Imputed Income Tax (NRIIT, for short), even if you do not rent out your Spanish property.

We offer the following taxation service for a flat fee of 90 euros plus VAT/year.

We file your tax online within 24 hours.

Our last day to file this tax in 2018 is Thursday the 20th of December.

 

We offer the most competitive fees in the market.

Non-Resident Imputed Income Tax (Fiscal Representation Service) €90/year

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal & tax services available from Larraín Nesbitt Lawyers:

 

Holiday lettings taxation-related articles

 

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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You are taxed at source on renting out in Spain

Raymundo Larraín Nesbitt, November, 29. 2018

Marbella-based lawyer Raymond Nesbitt explains that non-resident property owners are taxed in Spain on letting out their Spanish properties.

Blog post copyrighted © 2018.Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Lawyer – Abogado
30th of November 2018

 

It never ceases to surprise me when I need to clarify this point to clients.

There is a false widespread misconception that on renting out property in Spain, it’s fine to only pay taxes in your home country and not pay any income tax whatsoever in Spain. This is a mistake, of course.

This error is further compounded by the advent of the Common Reporting Standard (CRS, for short), a treaty signed by over 100 countries to combat tax evasion which came into force in 2018. Your home country will inform the Spanish Tax Office you have been deriving income from your Spanish properties but not declaring nor paying any tax in Spain. This may put you at odds with the tax office.

Take the case of British nationals, for example. There is a Double Taxation Treaty between Spain and the United Kingdom which clearly states that any income derived from letting a property is taxed at source. In other words, you need to declare and pay taxes on your rental income in the country where the real estate is located i.e. Spain. This is black on white, no grey areas to be gleaned.

This is better understood with an example. If you are a British national, and own and rent out property in Spain, you should be disclosing this rental income to the Spanish Tax Authorities and paying tax in Spain on a quarterly basis following this schedule for year 2018:

  • Q1 January – March. Filed on the first 15 days of April.
  • Q2 April – June. Filed on the first 15 days of July.
  • Q3 July – September. Filed on the first 15 days of October.
  • Q4 October – December. Filed on the first 15 days of January 2019.

 

On being UK-tax domiciled, you must also disclose any overseas earnings to HM Revenue & Customs (HMRC), which will give you tax breaks on any income tax paid to the Spanish Tax Office so you do not pay tax twice on the same earnings.

In my experience most property owners are not paying tax in Spain, whether out of ignorance or neglect, and are in fact paying tax only in their home country, if at all. The fact that you are not paying taxes in Spain will come to bite you when you sell on your Spanish property as a non-resident, as you will likely forfeit 3% of the sales proceeds. In addition to this, the Spanish Tax Office may open a tax inspection on you chasing you for any unpaid non-resident tax.

Your gross earnings are taxed at 19% if you are EU/EEA resident and 24% for the rest of the world. If you are EU-resident, we offer a taxation service (Holiday Rental Accounting Service) which brings down on average your tax bill by 70%, or more, on applying for lenient landlord tax relief. Just ask our friendly staff on this tax service. Why risk dodging taxes when you could simply play it legal and hardly pay any tax?

 

We will save you more money in taxes than what you spend on hiring us.

 

We offer the most competitive fees in the market. We file taxes all over Spain.

Holiday Rental Accounting Service (HRAS): €100/tax quarter

We are specialized in taxation

 

Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form to book an appointment.

Legal & tax services available from Larraín Nesbitt Lawyers:

 

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Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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New Mortgage Law to be passed

Raymundo Larraín Nesbitt, November, 21. 2018

Larraín Nesbitt Lawyers has over 16 year’s conveyancing & taxation experience at your service. Our team of native English-speaking lawyers and economists have a long track record successfully assisting expats acquiring property all over Spain, including Madrid and Barcelona.

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
21st of November 2018

 

Over the course of the next weeks a new Mortgage Act will be enacted by Congress. In the wake of the property bubble collapse, which has resulted in hundreds of thousands of bank repossessions and a deluge of litigation against lenders due to the widespread inclusion of abusive clauses in mortgage loans, a new bill is going to be passed that is going to alter significantly how mortgages work in Spain going forward.

The urgency on ratifying this new law comes about because Spain is already two years behind passing it, and the European Commission is threatening to levy fines of up to €100,000 per day if Spain does not pass the bill before the end of this year.

The draft bill is in its last stages, so few changes are to be expected. I have collated below the major highlights worth noting:

  • Floor clauses (collar clauses) will be completely removed in all mortgage loans.
  • Repossession procedures will now only take place when a borrower falls in arrears 12 quotas or 3% of the capital. In other words, as these quotas are normally repaid on a monthly basis, lenders will have to wait a full year before they are able to instigate a repossession procedure against a borrower. Up until recently lenders had to wait 3 months before they could repossess. Moreover, this 3-month rule was a recent change in itself, as lenders post-crash could execute a repossession with only one quota in arrears, which was simply lopsided.

 

This new bill is indeed very welcome for a number of reasons.

The new law will protect families, bolstering consumer rights, should they fall into arrears allowing them more time to get up on their feet and service their mortgage repayments. Over the last decade in Spain we have gone from lenders having the enormous power of instigating a repossession procedure on a borrower missing a single quota to lenders having to wait a full year before filing a repossession. In the aftermath of the property bubble collapse, hundreds of thousands of families lost their homes.

It will also bolster credit. Lenders, beset by hundreds of thousands of litigation procedures under way, are reluctant to lend, which severely impacts the credit supply. This new law will clear the path and hopefully alleviate the problem contributing to open up the credit supply which is fundamental, as credit underpins any major property recovery. Without credit, there can be no market recovery.

All in all, a good law.

I would like to end this post on a positive note, thinking that we have all learnt a collective lesson from the property bubble. Unfortunately, history is a stubborn mistress and teaches us that we always trip over the same stone, more than once.

 

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Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, inheritance, taxation and litigation. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

 

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Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Spain’s Supreme Court rules that in Dissolutions of Joint Property Ownership, Stamp Duty is only paid on the outgoing share

Raymundo Larraín Nesbitt, November, 14. 2018

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
14th November 2018

 

The Supreme Court makes the headlines (again), but this time for good reasons.

In a ruling from last month, the Supreme Court established that Stamp Duty is only paid on the outgoing share in a Dissolution of Joint Property Ownership (DJPO, for short), not on the full property value as until now.

I remind readers that following a DJPO is ideal on the following three cases (with up to 80% in tax savings):

  • In a divorce or separation.
  • Re-arranging inheritances.
  • Re-arranging property holdings between family and friends.

 

So, what on earth does this new change mean in layman’s terms?

It simply means you pay less taxes now – which is always a welcome respite.

It always boggled the mind on why Stamp Duty was paid on the full 100% of the property when only a share or % was actually being transferred.

With this new tax change, a joint owner will only be required to pay Stamp Duty strictly on the outgoing share only, which translates into a massive tax saving. However, the damper is that I must stress that the change still requires further like-minded rulings to consolidate it and become the new High Court doctrine. This is the new direction going forward on this tax on DJPOs.

This is more clearly seen with an example.

Example. Husband and wife divorce. They jointly own a villa in Andalusia. Wife buys 50% of the husband’s outgoing share on a property worth €500,000.

Before: ex-wife paid 1.5% Stamp Duty on the full property value= €7,500 euros

Post-ruling: ex-wife pays now = €3,750 euros (50% less tax)

Stamp Duty is a devolved tax of Spain’s 17 different autonomous regions. Each region is empowered to fix the tax rate within a sliding scale that varies between 0.5 and 1.5%. In Andalusia, for example, it is set at 1.5%.

And to close, as a gold nugget, the Supreme Court magistrates behind this new key ruling, are the same ones that ruled last 16th of October that lenders were to pay for Stamp Duty on mortgage loans, not the borrower; this landmark ruling caused a great commotion when the Supreme Court stepped in to appeal its own ruling and which prompted the Government to pass a new law on Stamp Duty to settle the matter amid the social backlash. They are a High Court section specialized in taxation.

 

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Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

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Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Banks to pay Stamp Duty on mortgage loans (again)

Raymundo Larraín Nesbitt, November, 9. 2018

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
9th November 2018

What a week.

The number of switchbacks and U-turns on this matter reminds me of the Stelvio Pass, in the Italian Alps (inset photo). I think I have seen soap operas with less plot twists than this whole ill-fated affair.

On Monday we started off the week with banks having to pay this tax.

On Tuesday the Supreme Court made an impressive (and most scandalous) U-turn in favour of lenders reversing its new two-week doctrine appealing its very own ruling from last 16th of October. The High Court made it clear once and for all (or maybe not) that borrowers were to pay for Stamp Duty.

On Wednesday, amidst the huge social backlash created by the polemic High Court’s reversal, Spain’s President Mr Sánchez announced on public television a new law to make banks pay for this tax (again).

This law has been published today in Spain’s Official Law Gazette and will come into force tomorrow Saturday 10th of November. The introduction to this new law does not hesitate to lay the blame squarely on the Supreme Court for the incredible gaffe of gargantuan proportions that has brought into disrepute our whole legal system and created huge legal uncertainty.

So, is this the end? Does this spell a landslide victory for borrowers? Do we crack open the champagne now?

I would still leave it on ice for the time being.

For starters, as I had already explained in my blog posts, it was almost a given that lenders would pass on the new costs to consumers. It is only a matter of time that lenders will increase the mortgage terms of loans making them more expensive. As I had pointed out in my articles, this may even restrict the credit supply at a time the opposite is sorely needed to prop up an ailing sector and consolidate a full market recovery. Less borrowers will qualify now for a mortgage loan after the hikes which translates into less properties being sold.

The Government says it believes lenders will ‘autoregulate’ themselves (?) and that they trust lenders will not pass on the costs to borrowers (??). To me, it all just sounds like wishful thinking unless something concrete is done about it. It would seem it’s all much ado about nothing as ultimately, one way or another, borrowers will end up picking the bill. But it looks good on polling day, which is around the corner.

Another point of concern is technical; whether such matters, as the creation of an obligation to pay a tax, can be approved using an executive Decree-Law. This leaves the door ajar in the future to appeal this new law on grounds of being unconstitutional as it has not been passed through Congress. I’m sure lender’s legal departments are having a field day analysing this plot hole and how to exploit it to their advantage.

Hopefully all the legal uncertainty (recklessly) introduced by Spain’s Supreme Court over the last three weeks will now dissipate and the path forward should be clear. Or not.

In the aftermath of this whole blunder, Spain’s Supreme Court reputation now lies in tatters. It is without a shadow of doubt the greatest victim of this self-inflicted damage. Despite the gravity of all that has transpired over the last three weeks, no one has resigned in Spain over this matter.

Clearly, Spain is different.

 

"Spain is different!" - Manuel Fraga

Manuel Fraga Iribarne (1922 – 2012). Brilliant Franquist Tourism Minister who employed this slogan to kickstart what would become Spain's most important and lucrative industry by rapport to its GDP contribution: Tourism. Manuel Fraga was the charismatic leader that created Alianza Popular which in time would be succeeded by today’s Partido Popular, Spain’s main centre right-wing party. Likely one of Spain’s most gifted politicians ever, he was sadly held back in his political aspirations for his liaisons to the now defunct ex-regime. Saddled by his political past, he was never elected into office but successfully groomed his successor, Mr José María Aznar, who would go on to become Spain’s first right-wing President in a democratic post-Franco era.

We offer the most competitive fees in the market.

Conveyancing – Buying

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Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in taxation, conveyancing, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal & Tax services available from Larraín Nesbitt Lawyers

 

Mortgage & litigation related articles

 

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Spain’s Supreme Court rules borrowers are to pay for Stamp Duty. Borrower’s hopes quashed (again), banks win (again)

Raymundo Larraín Nesbitt, November, 7. 2018

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
7th November 2018

 

In an unsurprising déjà vu, banks dodged (again) a multi-billion euro bullet thanks to Spain’s High Court (again).

Section III of Spain’s Supreme Court ruled last night in a closed vote with 15 in favour, 13 against and 3 absentees that borrowers are to pay for Stamp Duty on applying for mortgage loans.

Enterprising litigation lawyers on no win no fee will now have to do a great deal of explaining to clients on why they have lost their court cases. We always warned clients not to pursue this course of action and tried to dissuade clients from litigating on this matter as they were bound to lose. Unfortunately, time has proved us right (again).

I.e.  

Lender’s to pay for mortgage setup costs – 27th of January 2017

Recap of Legal Actions in Spain against Banks & Others – 21st March 2017

Spain’s Supreme Court quashes borrower’s hopes on refunds for mortgage set up costs – 1st March 2018

So, after three harrowing weeks, since the fateful ruling of the High Court last 16th of October, which plunged the whole mortgage market into chaos and triggered a massive stock slide, we have run full circle and we are now back at where we started.

But are we really?

Not a chance. Although the Supreme Court chose the lesser of two evils, choosing the option I had defended and advised all along was taken, it has not emerged unscathed from the public ordeal it got itself into for no good reason.

As I pointed out in my previous blog post, Spain’s Supreme Court wreaks havoc in the mortgage market, regardless of which of the two options were taken, the Supreme Court had clumsily painted itself into a corner and was going to be severely criticized one way or another regardless of what it chose. Such is the nature of getting oneself into such a sticky situation that no one called for.

Whilst small lower courts judges in Spain are snowed under court cases, overworked, underpaid, understaffed, overclocked, working in precarious and outdated conditions, they still manage (somehow) to lead the brunt of the fight against the abuse of all-powerful lenders.

Supreme Court magistrates, on the other hand, would seem to take a rather difference stance from their lower peers adopting a more laid-back attitude.

I believe it is no longer opinionable whether Spain’s Supreme Court is biased or not towards banks; it is now a fact. You only need to examine the key rulings over the last 5 years where billions of euros were at stake to determine this court always bends over backwards to rule in favour of lenders and against consumers in general. It is no longer a widely-held perception, it is now factual in light of recent events.

Back in 2009, I was one of the first lawyers that severely criticized banks on abusive clauses in mortgage loans. As an example this article: 10 Common Abusive Clauses in Spanish Mortgage Loans - 04 Jun 2009. The very first point of this abusive clause list were floor clauses, or cláusulas suelo in Spanish.  It wasn’t until five years later, in May 2013, where the Supreme Court finally acknowledged these clauses as abusive and therefore as null and void.  In Law we have a Roman maxim which is still applied nowadays: “Quod nullum est nullum producit effectum.” What the High Court magistrates should have ruled, was to give the nullity retroactive effects to all bank-related mortgages making banks pay for their greed during the property boom – they did not.

The magistrates, in one of those rare black or white cases, twisted laws and a two-thousand-year-old Roman Law maxim to ply themselves in the interests of lenders making them dodge a multi-billion euro bullet. The only magistrate that dared break rank from his peers with a vote against was the only magistrate who in fact had NOT worked for lenders in the past nor had any professional ties to them; Mr. Francisco Javier Orduña Moreno, to his credit. I commented on this in great detail at the time: European Court of Justice Slams ‘Floor Clauses’. The ECJ - an independent EU High Court - had no qualms ruling against Spanish banks over this matter.

So, where I’m getting at is that over the last five years the Supreme Court has bent over backwards to please and accommodate the powerful banking sector, the real power in the shade in Spain. For the first time ever, last 16th of October magistrates of Section II of the Supreme Court defied this long-standing status quo ruling against it in what would have costed lenders an estimated 14 billion euros if the ruling had retroactive effects over the last 4 years. Unfortunately, this was not really the occasion to rule against banks and I’ve publicly upheld this ruling was both reckless and unjust to banks which on this occasion were being treated unfairly given existing laws.

Not 24 hours had passed from this landmark ruling when the President of Section III of the Supreme Court put the ruling’s effects on hold and called for a general vote to uphold or overturn this breaking ruling. This was unheard of and, to the best of my limited knowledge, there are no precedents on calling such a plenary vote. I wonder if the aggrieved had been anybody else other than lenders, if the Supreme Court would have shown the same lightning reflexes and acted as hastily as it did calling for an unprecedented vote. It begs the question.

Whilst I strongly disagreed with this ruling, because the magistrates involved had out of the blue, on the back of recent public outcries against banks, unilaterally decided to rewrite decades-old tax laws (which I get were poorly drafted and even highly questionable, but ultimately they were laws and needed to be respected or else had to be formally repealed) creating great legal insecurity and instability this was not the right time to rule against lenders. These high magistrates have had multiple occasions in the past to rule in favour of consumers in clear cut cases (and have not) and most certainly this was not one of them.

As I write again, God forbid I defend lender’s interests, but in this particular case it was only of justice that the ruling was in favour of banks because they were right. Magistrates need to interpret, and construe laws, not make them up as they go along or else we turn ourselves into a South American banana republic in which I for one do not want to live in.

As a result of the gross mismanagement of this whole affair, the Supreme Court has lost face to no end. It is of vital importance for a healthy Democracy, specially one as young as Spain’s which not long ago was under the claws of a dictatorship, that Society places trust in its institutions, specially one as significant as the Supreme Court. Because of its recent track record, where it has ruled time and time again in favour of banks, I believe the general public no longer see the High Court as independent but as a lackey of higher interests. And this in a Democracy is simply unacceptable.

As I wrote on my previous blog post, working in the private sector I have personally witnessed how executives were sacked or else handed over their resignations on much lighter issues. This unprecedented debacle has brought the whole mortgage market to its knees for three weeks, has threatened the much anticipated financial recovery, has triggered a massive stock sell-off, has threatened the planned budget for next year, has beset the coffers of regional Authorities, has brought into question the independence of the Supreme Court, has exposed the underbelly of this prestigious High Court showing that dissension is rife, has tarnished its reputation, has damaged to no end the image and credibility of Justice in Spain, has sparked public outroar and will now lead to massive public manifestations and protests all over Spain over the next weeks and months.

With all this in mind, I believe that a severe shake up is warranted, and we need more than a simple off-handed apology from the President of the High Court (Mr Lesmes). This man is tasked with overseeing the Supreme Court and only found about this whole matter on reading the morning press (his words!). The honourable exit would be for him to resign given the gravity of what's happened and his enormous oversight. Directly responsible as well is the President of Section III of the Supreme Court, Mr Díez-Picazo, who by the way happens to work as part time university teacher in the prestigious private centre CUNEF (run by Spain's Banking Association, AEB); he created this fiasco, grossly mishandled the whole affair freezing the ruling against banks when not even 24 hours had elapsed and called for an unprecedented vote to overturn it. As section President, his prerogative is to be the last one to vote in the extraordinary plenary and proved to be the decisive vote needed to tip the scales in favour of banks. There is no question he should hand in his immediate resignation too. And last but not least, are the magistrates involved that signed such an unfair ruling against banks and have been publicly called out for it; I simply do not know how going forward they can show up at work every day.

Bottom line, the market, Society at large, demand more than a casual apology from the S.C. President for this whole fiasco that has brought into question the entire system on which we lean on. To restore confidence and bring balance, a visible change has to be seen and someone needs to step forward and assume the mantle, taking ownership for the gross mishandling we have witnessed over the last weeks and set it straight. At least, this is what should happen in any self-respecting modern democracy.

The only positive outcome of this whole debacle, is that no one talks any longer on the separatist problem.

Pay no attention to that man behind the curtain!”' – Wizard of Oz.

 

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Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

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Spain’s Supreme Court wreaks havoc in the mortgage market

Raymundo Larraín Nesbitt, November, 2. 2018

Blog post copyrighted © 2018. Plagiarism will be criminally prosecuted.

By Raymundo Larraín Nesbitt
Director of Larraín Nesbitt Lawyers
2nd November 2018

Spain’s Supreme Court has managed single-handedly to freeze over Spain’s entire mortgage market. Lenders have taken down from their websites mortgage loan offers, as reported by the media, and it is currently not possible to apply for a mortgage loan until the matter is solved, one way or another.

The timing couldn’t be worst. Lenders, after a decade-long hiatus, were finally jumping back into the fray offering even 100 % mortgage loans given how the real estate market was clearly making a comeback in full force in 2018, spearheaded by off-plan properties.

This incredible blunder, which in any self-respecting private company would have led to massive layoffs, albeit as we are dealing with high-ranking public servants we must carry on and smile, was achieved on the release of a ruling that made lenders responsible for paying Stamp Duty in all mortgage loans with retroactive effects over the last 4 years. This would entail lenders needing to shell out an extra 14 billion euros. The news led to a massive sell-off of bank stocks making all bank indexes plummet into red across the board.

24 hours hadn’t even passed when the ruling was put on hold by the Supreme Court itself amidst the backlash generated by lenders, a force to be reckoned with in Spain. This latest action by the Supreme Court, one more in a long string of faux pas with bank-related rulings where billions of euros were at stake, has tarnished the prestige of the highest court in the land. Some are even openly questioning its independence from the banking lobby.

This ruling blatantly contradicts a prior ruling from earlier on this year which we commented in our blog post: Spain’s Supreme Court quashes borrower’s hopes on refunds for mortgage set up costs.

God forbid I defend lender’s interests, but in this particular case, the Stamp Duty Act had made it clear for over three decades that borrowers had to pay for this tax. Recent blurry rulings had left the door ajar for enterprising litigation lawyers (offering enticing no win, no fee) to bring into question who pays for Stamp Duty on mortgage loans: consumers or lenders. To me the question has always been clear; it should be consumers, following the law’s wording and the last thirty years of day-to-day practice.

Spain’s Supreme Court will be mulling over the next weeks whether consumers (borrowers) or else lenders should pay for Stamp Duty. Even in the event the Supreme Court backpedals and rules that it is lenders that should pay for it, let us not be naïve, lenders will surely pass on to consumers the increased costs this (reckless) ruling would surely bring. Not to mention tightening credit supply at a time when what we need most is the opposite; to pad and encourage a market recovery.

In any case, whatever the final outcome is on Monday 5th of November, the decision will spell serious trouble for the Supreme Court.

If it rules that consumers have to pay for Stamp Duty tax on mortgage loans, it will be seen as pandering to the interests of the powerful banking lobby and will further damage its credibility as an independent court.

On the other hand, if it rules that it is in fact lenders who should pay for this tax, it will create serious legal insecurity with retroactive effects. This in turn will immediately impact credit, increasing mortgage terms for borrowers, which indirectly will restrict credit overall. This is exactly the opposite of what is required to consolidate a full property market recovery that would create millions of jobs.

There is nothing investors and house buyers dislike more than uncertainty; specifically, legal uncertainty. The final decision will be a clear example of damned if you do and damned if you don't. The careless mismanagement of this whole matter is to blame for painting themselves into a corner. The President of the Supreme Court only found out about this key ruling through the press (sic). In the private sector, executives hand over their resignation over much lighter problems.

If laws need to be amended or repealed, then it is Congress that gets the job done enacting new ones. That is precisely the purpose on why we have a separation of three powers in a Democratic State (judiciary, legislative and executive branches). The judiciary should categorically under no circumstances be interfering changing decades-old laws through rulings, much less the highest court in the land which should embody at all times an exemplary conduct on which all lower courts should look up to as an example to follow.

In the meantime, all of us involved in the property & mortgage industry will hold with a bated breath on the final outcome. With any luck, it would be nice to have this matter solved before the Christmas break.

We already have enough on our plate with Brexit, thank you very much.

 

We offer the most competitive fees in the market.

Conveyancing – Buying

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Larraín Nesbitt Lawyers, small on fees, big on service.

Larraín Nesbitt Lawyers is a law firm specialized in conveyancing, taxation, inheritance and litigation. We will be very pleased to discuss your matter with you. You can contact us by e-mail at info@larrainnesbitt.com, by telephone on (+34) 952 19 22 88 or by completing our contact form.

Legal & Tax services available from Larraín Nesbitt Lawyers

 

Mortgage & litigation related articles

 

Please note the information provided in this blog post is of general interest only and is not to be construed or intended as substitute for professional legal advice. This article may be posted freely in websites or other social media so long as the author is duly credited. Plagiarizing, whether in whole or in part, this article without crediting the author may result in criminal prosecution. VOV.

2.018 © Raymundo Larraín Nesbitt. All rights reserved.

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