Diego Paredes, an engineer from Valladolid, is buying a flat in Benalmádena for 260,000 € from Siobhan Kelly, who lives in Dublin. The flat has a mortgage with 140,000 € outstanding and the bank agrees to Diego taking it over by subrogation: he assumes the loan and pays Siobhan the difference. Diego reasons like this: "I am only going to hand her 120,000 € in cash, so I withhold 3 % of 120,000." He gets 3,600 €. The notary, when preparing the draft deed, corrects his figure.
The debt taken over is also price
Article 25.2 of the Law on IRNR (Spanish non-resident income tax) calculates the withholding on "the agreed consideration". When the buyer takes over the seller's mortgage, part of that consideration is paid by releasing the seller from a debt: Siobhan stops owing 140,000 € to the bank because Diego now owes it. Economically, that is exactly the same as if Diego gave her 140,000 € and she used them to pay off the loan.
The agreed consideration is therefore 260,000 €, the sum of the money handed over and the debt taken on. The 3 % is calculated on that.
- Total price: 260,000 €.
- Withholding: 260,000 × 3 % = 7,800 €.
- Debt taken over by subrogation: 140,000 €.
- Money Diego must hand over: 260,000 − 140,000 = 120,000 €.
- The 7,800 € withholding comes out of those 120,000 €.
- Siobhan receives in cash: 120,000 − 7,800 = 112,200 €.
With Diego's calculation, he would have withheld 3,600 € and left 4,200 € unpaid, which he would still owe as withholder.
Subrogation or cancellation at signing: the same sums
The most common arrangement is not subrogation but cancelling the seller's mortgage at the signing of the deed: the buyer hands one cheque to the seller's bank for the outstanding debt and another to the seller for the rest. The withholding calculation is identical.
| Item | With subrogation | With cancellation at signing |
|---|---|---|
| Total price | 260,000 € | 260,000 € |
| Base of the withholding | 260,000 € | 260,000 € |
| Withholding (Modelo 211) | 7,800 € | 7,800 € |
| To the seller's bank | 0 € (Diego takes over the loan) | 140,000 € |
| Debt Diego takes on | 140,000 € | 0 € |
| To Siobhan in cash | 112,200 € | 112,200 € |
In both cases Siobhan ends up with 112,200 € and no debt, and Hacienda, as the Spanish tax office is commonly called, with 7,800 € on account of her tax. What changes is Diego's position: with subrogation he has a loan; with cancellation, he will have financed it some other way or with his own funds.
If you have a purchase with a mortgage outstanding and would like us to review how the cheques are split before signing, send us the draft through the Modelo 211 form.
When the debt eats up almost the whole price
There is an awkward case worth anticipating. Take another purchase: Elena Vidal buys a studio in Fuengirola for 190,000 € from a Dutch seller whose outstanding mortgage is 186,000 €. Elena takes it over by subrogation.
- Withholding: 190,000 × 3 % = 5,700 €.
- Money Elena hands to the seller: 190,000 − 186,000 = 4,000 €.
- Shortfall: 1,700 € is missing to cover the withholding.
The obligation to pay in the 5,700 € is still Elena's. If nothing is agreed, she will put up the extra 1,700 € out of her own pocket and have to claim them from the seller. The reasonable thing is for the arras contract (the deposit agreement signed before the deed) to oblige the seller to provide that difference at the notary's office, or for the price or the amount taken over to be adjusted so that the cash part is enough to cover the withholding.
The outstanding debt shown in the subrogation offer may not match the one on the day of the deed: arrears, fees or interest move it. If the cash part is very tight, a small gap can leave you with no margin for the withholding. Ask the bank for an updated certificate a few days beforehand.
The buyer's own mortgage plays no part here
The mortgage the buyer takes out to finance the purchase is a different matter. If Diego, instead of taking over the loan, signs a new one with his bank for 200,000 €, that financing does not affect the base. The consideration is still 260,000 € and the withholding 7,800 €. All that matters is that the total funds (loan plus savings) are enough to pay the seller's bank, the seller and Hacienda. When preparing the provision of funds with the notary's office, the withholding should appear as a separate item, so that nobody assumes the cheque to the seller is for the whole difference.
Attachments and other charges paid off with the price
The same logic applies to any debt of the seller's that is settled with the purchase money: an attachment that has to be lifted, overdue community of owners' fees, a personal loan secured on the property. They are uses of the price, not discounts. The base of the withholding is still the full consideration. What does change is how much money is left to withhold from, and that is what has to be calculated in advance.
For the seller, on the other hand, paying off the mortgage is not a cost deductible from the gain: repaying a loan is not a cost of the sale. What are deductible, where applicable, are the costs inherent in the transfer that the seller pays, under article 35.2 of the IRPF Law (Spanish personal income tax), to which article 24.4 of the IRNR Law refers. But that is a matter for the seller's Modelo 210.
What Siobhan will see when she files
For the seller, subrogation does not reduce the sale value. In her Modelo 210 she will declare 260,000 € as the transfer value, not the 112,200 € she received in cash, because the debt she has been released from is also price received. From the resulting tax she will subtract the 7,800 € Diego paid in for her, and if the tax due is lower, she will ask for the difference, as we explain in when the excess 3 % comes back. For that she needs Modelo 211 to show the correct base: if Diego had withheld on 120,000 €, Siobhan would have a smaller withholding to deduct and an argument with her buyer that nobody wants to have.
How to reflect it in the deed
So that the seller can later support the withholding and there is no argument about the base, the deed should record:
- The total price and its breakdown: money handed over, debt taken over by subrogation or amount used to cancel the loan.
- The 3 % withholding on the total price, with its amount.
- The buyer's undertaking to pay it in with Modelo 211 within one month of the transfer (article 14.3 of the IRNR Regulations).
The base of the withholding in other situations (deferred payments, exchanges, furniture) is in on what amount the 3 % is calculated, and the effect on the buyer's money in does the 3 % come out of my pocket? The guide on how to fill in Modelo 211 shows where each item is entered.
The questions about the 3 % withholding for anyone buying from a non-resident are set out on the Salama Tax page on Modelo 211.