Payment in kind is a term that recently can be heard in all communication media in Spain. It is about the agreement of delivering the real property by the debtor to the bank, in exchange of paying off the debt that was entered into when purchasing the property in Spain. Said in other words, the cancellation of the mortgage debt by delivering the property when the debtor cannot pay off the debt any more. It is an alternative that allows many families to be released from paying for something they do not possess any more.

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Nevertheless, as this is a transaction, it is subject to certain taxes in Spain. In this transaction, you will have a gain or a loss depending on the difference of the value of the property when purchased with the mortgage and when delivered to the bank as payment in kind.

Payment in kind might be taxed under different modalities: as Transfer tax and stamp duty or as VAT, depending on the case.

In case of a natural person, the liquidation of the tax on payment in kind corresponds to the modality of Transfer Tax and Stamp Duty, actually to be very concrete, to the modality Onerous Equity Transmissions). Generally, this tax is assumed by the banks given the financial difficulties of the person who has the mortgage taken out.

In case the payment in kind is between a professional/self-employed or a company and a bank, and we are dealing with a newly built property or a property that is being constructed, the payment in kind shall be subject to the payment of the VAT which will be applied on the real value according to the moment in which the operation is carried out. In the second and subsequent transmissions, these are exempt from VAT and tax for Transfer Tax.

Who is exempt from paying taxes in Spain?

In case there is a capital gains generated in Spain for the payment in kind, individuals in risk of exclusion, without resources to pay the debt will be exempted from taxing Income Tax for Natural Persons, in case they comply with the following requirements:

  • The members of the family residing in the property do not generate any income and do not dispose of assets to pay the debt.
  • The mortgage loan corresponds to the mortgaged property and the debtor.
  • The mortgage takes more than 60% of the income of the family unit.
  • Have no other real or personal guarantees.


Should you wish any further information, counseling or any enquiry on tax law, do not hesitate to contact our law firm and team of economists in Marbella.