Payments made to the city council do not count as external financing for the main residence deduction

The application of the deduction for investment in the main residence under the transitional regime generates recurring doubts, especially when the acquisition of the home is not carried out through a traditional financial institution, but through payments or installments to municipal bodies.

What the DGT has ruled

The query concerned whether installments paid to a city council are considered amounts satisfied with external financing for the purposes of the deduction in Personal Income Tax (IRPF). After analyzing the current regulations, the Dirección General de Tributos (DGT) has determined that such installments do not meet the nature of external financing required by Law 35/2006.

The criterion is based on the fact that, for an amount to be considered part of the external financing in this case, there must be a loan or credit that allows for the acquisition of the property. In the case of payments made to the city council, these do not fit the technical definition of external financing necessary to calculate the investment amount under the transitional regime.

What it means for you

If you are an individual who acquired your main residence before 2013 and are covered by the transitional deduction regime, this criterion limits the scope of what you can deduct. Specifically, if your acquisition model involves paying installments to a local administration, you will not be able to include those amounts as part of the external financing to increase the deduction base.

This implies that the calculation of the investment made will be restricted solely to the amounts that truly constitute external financing according to the parameters of the IRPF Law, excluding municipal payments that do not have that credit nature.

What you should do

It is necessary to analyze the legal nature of the payments made for the acquisition of the home. It must be verified whether the amounts paid to the city council correspond to a formal loan or if they are merely installment payments that do not qualify as financial debt. Each situation requires a detailed examination of the contracts and the way the acquisition has been structured to avoid errors in the income tax return.