Explanatory note

NOTICE ON THE REDUCTION TO THE TAX WITHHOLDING RATE IN FISCAL YEAR 2013 FOR PAYMENTS ON LOANS FOR THE ACQUISITION OR RENOVATION OF A PRINCIPAL RESIDENCE

As a general rule, from 1st January 2013 the tax credit for investment in a principal residence previously applicable against Income Tax, set forth in Article 68(1) of the Income Tax Act, has been eliminated. However, the 18th Transitional Provision of said Act, in the drafting given in Law 16/2012 of 27th December adopting various tax measures aimed at consolidating public finances and driving economic activity (Official State Bulletin of 28/12/2012), lays down specific circumstances and cases in which said tax credit will remain applicable after this date.

These regulatory changes have given rise to some doubt over the applicability in fiscal year 2013 of the 2% reduction to the withholding rate set forth in the last paragraph of Article 86(1) of the Income Tax Regulation, for payees who receive income from work amounting to less than 33,007.20 euros per year and inform their payers that they are putting money towards the acquisition or renovation of their principal home using external financing, giving rise to a right to the tax credit for investment in a principal residence.

More specifically, the question is in which scenarios the abovementioned withholding rate reduction should be applied after 1st January 2013, and which taxpayers are entitled to fill in Section 5 of Form 145, provided below, to inform the payers of their income from work of their right to said tax credit.

In regard to this question, a distinction should be made:

1. Taxpayers who, from 1st January 2013, continue to be entitled to the reduction in the withholding rate set forth in the last paragraph of Article 86(1) of the Income Tax Regulation, entitling them to inform their payers of said right by filling in Form 145

   Pursuant to the stipulations of the 11th Transitional Provision of the Income Tax Regulation and the 18th Transitional Provision of the Income Tax Law, from 1st January 2013 Form 145 may be submitted to inform of an entitlement to the reduction to the withholding rate applied to income from work by taxpayers who meet the relevant requirements set forth in Article 86(1) of the Income Tax Regulation as well as one of the following conditions:

   1. Taxpayers who have acquired their principal residence before 1st January 2013.
   2. Taxpayers who have already paid money, before 1st January 2013, for renovation works on their principal residence, provided that said works are to be completed before 1st January 2017.

   This is assuming that, in both cases, the taxpayer has not submitted Form 145 before 1st January 2013 giving notification of this right. Should this be the case, there is no need to provide notification again.

2. Taxpayers who, from 1st January 2013, are not entitled to provide notification via Form 145 of their entitlement to the withholding rate reduction set forth in the last paragraph of Article 86(1) of the Income Tax Regulation because they do not have a right to the tax credit for investment in a principal home in fiscal year 2013 will also not have the right, in said fiscal year, to the reduction in the applicable withholding rate. Therefore, the following taxpayers cannot submit Form 145 to their payers informing them of said right:
   1. Taxpayers who acquire their principal residence after 31st December 2012.
   2. Taxpayers who, after December 31, 2012, make investments for the rehabilitation of their habitual residence, unless they have already paid amounts for this concept before January 1, 2013, provided that the works are completed before January 1, 2017.

Madrid, January 2013