Mortgage 'floor clause' refunds subject to income tax and must be declared

According to the fiscal collection department Hacienda, refunds for illegal 'minimum interest' clauses do not count as 'earnings' for income tax purposes, but must be offset against the allowance the annual declaration includes for ownership of a main residence, a mortgage on the same, and for the original expenses involved in buying a property.

Banks ordered to pay back overcharged interest on mortgages will also be required to pay the homeowner interest on this sum for the length of time they have unlawfully withheld the cash from the client.

But this late-payment interest counts as 'asset increases', and are as such subject to income tax, Hacienda confirms.

The allowance for a main residence is one of the largest involved in annual income tax declarations, applies to any homes bought before 2013 and is linked to the monthly mortgage quota paid by the owner – but this quota would have been lower if the banks had not applied the illegal clauses, meaning less for the customer to offset against his or her annual tax bill, and the difference will need to be paid.

Minister for the treasury Cristóbal Montoro has already said his department would 'play a role' in 'overseeing' the refund of 'floor clause' interest overpaid in order to check for possible tax obligations arising for the recipient customers.