What is the VAT when buying a new construction home?

The decision to purchase a new home is a significant milestone in the lives of many Spaniards. The buying and selling process is full of steps to follow, especially when it comes to procedures and contractual agreements. But among all these considerations, there is one crucial element that should not be overlooked: Value Added Tax (VAT).

VAT on a new build home represents a significant percentage of the purchase price. And, as with other goods and services, this tax also applies to the purchase of a home, but only to new builds. Second-hand homes do not have to pay VAT. However, they do have to pay the tax on the transfer of immovable property (ITP), as it is considered a second transfer.

In today's article, we will explain in detail what VAT is and how much it is when you buy a new house. Read on!

What are new construction homes subject to VAT?

Buying a new home is subject to various taxes, including VAT. First of all, let's look at what we mean when we talk about new construction homes or first-time buyers that are subject to VAT. The Tax Agency defines them as those that are purchased directly from the developer once the construction or renovation has been completed.

However, there is an exception if the homes have been used continuously for a period of at least two years by people other than the future owners. This means that if the developer decides to rent the dwellings after completion of the works and puts them up for sale after two years, if they are bought by the same tenants, this is considered a 'first delivery'. If, on the other hand, they are bought by other people, it is not considered a purchase of a new dwelling.

What is the VAT on a new home?

In general, the VAT on a new home in Spain is 10% of the value of the property. This rate applies not only to the house itself, but also to the parking spaces and outbuildings that are part of the property.

To calculate the amount of VAT on a new construction, the sale price of the property must be multiplied by 10%. For example, if the price of the house we want to buy is 300,000 euros, the tax rate is 10% and the amount of VAT to be paid would be 30,000 euros. The formula to calculate this would be as follows

• 300,000 euros x 0.10 = 30,000 euros

As we have already mentioned, this tax only applies to newly built apartments and houses, while second-hand houses are subject to the Property Transfer Tax (ITP).

Exceptions to VAT on new builds

Although in general the VAT payable on the purchase of a new build home in Spain is 10% of the purchase price, there are some exceptions or circumstances to consider.

For example, new construction homes for rent with an option to buy are also subject to 10% VAT on the final price of the property. This is due to the fact that VAT is applied to the first sale of a property, as mentioned above. A lease with a purchase option is classified as a first sale of a property because the first tenant has the option to buy the property at the end of the lease.

However, in the case of new officially protected housing under a special regime or public promotion, they have a reduced VAT of 4%

How is VAT paid when buying a new home?

When you buy a new home, you must pay VAT when you sign the deed and receive the keys. The buyer must pay the seller or developer the amount corresponding to the VAT on the house together with the rest of the payment. The seller is obliged to pay the tax to the Treasury.

It is important to remember that, in addition to VAT, there are other costs and taxes associated with the purchase of a new property, such as notary fees and administrative costs. Let's look at them in detail:

• The cost of registering the sale in the Property Registry.
• Expenses related to notary fees. 
• Fees for the agency in charge of the administrative procedures during the sale. These costs are not compulsory and vary according to the agency chosen.

Is there VAT on second homes?

VAT does not apply to second hand homes, instead the buyer must pay the Property Transfer Tax (ITP). This is a regional tax, so the rate varies according to the Autonomous Community in which the property is located. In general, the percentage varies between 6% and 10% of the purchase value of the property.

Understanding VAT on new homes under construction with Prime Invest

Understanding the taxes and costs associated with buying a new home in Spain can make the difference between a hassle-free transaction and one full of financial surprises. VAT on new builds is one of the most important issues when selling a property under construction. At Prime Invest, as property experts, we understand the excitement of investing in a new home and value your peace of mind during the process.

Our team of luxury property advisors are on hand to answer your questions and provide personalized advice. And if you are interested in the latest trends in the new home market, we invite you to explore our article where we tell you everything. Discover how these factors can affect your next investment. Let us be your guide on this exciting journey!