Taxation of Documented Legal Acts on the release of co-debtors

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the tax burden involved in modifying the conditions of a mortgage loan when deciding to release one of the co-debtors from their responsibility.

What the DGT has ruled

The query concerned the taxation of the operation of releasing co-debtors via a public deed in a mortgage-backed loan. The body has determined that this operation is subject to the documented legal acts modality of the Transfer Tax and Documented Legal Acts Tax (ITPAJD).

The ruling clarifies that, since it does not involve the transfer of an asset or a right, but rather a modification in the structure of the debt, the taxable event is perfected with the execution of the notarial document. In this sense, the applicable regulations are the TRLITPAJD (RDLeg 1/1993) and the General Tax Law (Ley 58/2003).

What it means for you

If you are part of a shared mortgage loan and formally request to no longer be responsible for the debt, this process is not free from a tax perspective. The tax will be applied to the release operation.

Regarding the responsibility for payment, the taxpayer will be the person who urges or requests the execution of the notarial deed to achieve their release. The applicable tax rate will be the one determined by the corresponding Autonomous Community or, failing that, the general rate of 0.50%.

What you should do

When faced with the need to modify the composition of a mortgage debt, it is necessary to consider the economic impact of the documented legal acts tax. Since the taxpayer is the one requesting the deed, it is fundamental to have clarity on who will assume this cost before proceeding with the management before the notary. Each debt release situation must be analyzed to determine the exact tax rate according to the geographical location of the property or the applicable tax residence.