AJD Tax: What is it and how does it work?

In Spain, the process of buying a property involves quite a few costs. As an average one should expect around 10-15% of the purchase price as a cost.
The costs consist of different taxes, notary fees, solicitor fees, valuation fees etc. One of the taxes that you are due to pay in Spain is the infamous mortgage tax or AJD (Actos Juridicos Documentados) tax. This tax is officially stated as between 1-1.5% depending on the region you are in. Even so, many people gets surprised once they realise that the effective cost of this tax normally adds up to approx. 2-2.5% of the mortgage amount. In this article I aim to clarify how this tax works, so that our clients can avoid nasty surprises when paying their mortgage tax in Spain.

At Spectrum International Mortgages in Spain we have seen many people doing their own cost calculations on the side and they always end up short as they calculate the AJD tax as 1-1.5% of the mortgage amount.

The question obviously is, 1-1.5% of what then if not of the mortgage amount? How is the the AJD tax calculated if not on the mortgage amount?  The answer is that the percentage is calculated on base of something called the “Responsabilidad hipotecario” which translates into “mortgage responsibility”. This normally represents between 150-200% of the mortgage amount. The exact percentage varies from bank to bank to make matters even more complicated. The “mortgage responsibility” is calculated by taking an average of what the mortgage costs if e.g. the person fails to pay the mortgage for a period, if the bank has to take the loan taker to court etc. etc. So they end up with a much higher number than just the mortgage amount, of course. And this number is what you pay AJD tax on. Let me provide an example below of AJD tax on a mortgage of 300,000€:

Mortgage amount: 300,000€
AJD tax due: 1.2%
AJD percentage for calculation: 160% of mortgage value => 480,000€
1.2% of 480,000€ (reality)=> 5,760€
1.2% of 300,000 (client’s calculation) => 3,600€
The surprise: 5,760-3,600 = 2.160€ that the client did not expect.

This takes the effective cost of the tax (in this made up but realistic example) to 1.92% of the mortgage amount. It’s “only” a difference of 0.72%, but it makes an important difference in the amount due to pay to the tax man and many people are surprised when they realise this. One of the issues about this tax is the lack of transparency which means that sometimes, not even the people professionally involved with the process know how it works and why the calculation works out differently than expected.

Therefore it is always a good idea to have a chat with us before going to look for a mortgage on your own. The big difference is in the detail, and the AJD tax is just one example of the kind of issues you can run into when setting up a mortgage in Spain.