Everything you need to know about VAT and your home
The Value Added Tax or Value Added Tax (VAT) is a tax levied on the consumption of goods and services of companies and individuals. As it is an indirect tax, it is not paid directly to the Treasury but is applied to the acquisition of certain goods or the contracting of services.
In the case of households, the VAT housing relationship implies a series of aspects that must be taken into account.
VAT and housing: preliminary considerations
When buying a house, the first thing you should do is know how to distinguish between a new construction and a second-hand home, because it is not true that practically the same taxes are paid.
The term “first delivery” is understood to mean the homes that are purchased directly from the developer once the construction or rehabilitation is completed. A house is finished when a certificate of completion is issued by the architect and the surveyor who directed it.
The “second deliveries” are those that are not sold by the developer but rather someone who has already bought the house sells it to third parties. However, there is an exception: if the developer, once the works are finished, rents the home and after two years puts it up for sale, it becomes a second-hand home.
Usually, the first deliveries are more expensive per square meter because you can live from the first moment in unused rooms and it does not need renovations. The latter have lower prices but you must take into account the possible reforms that are necessary to make.
VAT on the purchase of a new home
The purchase of a new home implies the responsibility of the buyer to pay VAT. But how much should you pay? Easy: the VAT is calculated by multiplying the price of the apartment by the tax rate in force at the time of purchase. The payment is made to the seller and then the seller is obliged to pay the tax in the Public Treasury.
Remember that this calculation will only be applicable if you buy the house directly from the developer after finishing the construction. If the home was rented for a period of 2 or more years, it is considered second-hand. So, the VAT calculation is different.
You must also differentiate the homes that exist, there are the Public Protection Housing (VPP), the free housing and the Official Protection Housing (VPO). The need for this differentiation is due to the fact that they pay a different new home VAT.
The VAT Law (Law 37/1992, of December 28) differentiates three VAT tax rates: the general (21%), the reduced (10%) and the super-reduced (4%). According to this Law, the super-reduced tax of 4% is applied to Official Protection Homes, to Public Protection Homes and new homes sold freely, the reduced tax of 10% and commercial premises -even if part of these are destined to housing-, the general of 21%.
The number of parking spaces assigned to each owner subject to VAT on their home is two. The parking spaces that are transmitted jointly with the house will have a 21% VAT if they were more than two units. In the same way, the annexes that are sold together with the house will be subject to the same tax as it.
What about VAT on second-hand homes?
In the second and subsequent deliveries of homes, VAT is not applied, but the Onerous Asset Transfer Tax (ITP) is taxed. Depending on the tax policies of each Autonomous Community, taxes vary. In Madrid it is 6%, in Andalusia and Catalonia it is 10% and in Extremadura and the Balearic Islands it can reach 11%. So in case the previous exception applies, where the developer rented the house for two years after the completion of the construction or rehabilitation, you must pay the ITP since it is considered a second transmission.
When buying a home, price is the variable that weighs the most on the scale, much more than size or location. Many times, the difference in prices between one and another home is very evident. However, on a tax level, the taxes that must be paid for a new house and a second-hand one are quite similar. For tax purposes, a second-hand home does not have to do with the year it was built, but with the number of times it has been sold.
Final considerations on VAT on homes
Perhaps it may seem to you that once you have paid the VAT or ITP you have already complied with all your taxes, but it is not like that. Although the VAT for new homes is the same throughout Spain (10%), it is necessary to pay -in addition-, the Tax on Documented Legal Acts (AJD).
The AJD is a tribute collected by the Autonomous Communities for commercial, notarial and administrative documents. It is composed of a fixed fee, applied to notarial documents, and a variable fee, applied to the objects of the deeds inscribable in the Property Registries. The AJD is set by each community and, depending on the type of home and the amount of it, you can be exempt or pay the tax that ranges between 0.5% and 2%. In Madrid, for example, it is 0.75%.
In the case of buying a new house, you must pay the VAT of your home and the fixed and variable fees of the AJD, which are calculated on the declared value of it. If you buy a second-hand one, on the other hand, you will have to pay the ITP and the fixed fee of the AJD, but you should not pay the variable fee of the AJD, since this and the ITP are incompatible.
On the other hand, when you are already considered the owner of your new home, you will be obliged to pay the Property Tax (IBI). The percentage that will be applied to you will depend on the characteristics of your house and where it is located. However, the tax rate will be between 0.4% and 1.1%.
If you have any kind of questions, from Sky Marketing we will be happy to help you and guide you with everything related to VAT and the purchase of your home.