I buy a property, do I have to pay VAT or ITP?

The concept of Residence and First Delivery of a Residence (New Homes)

Law 37/1992, of December 28, on Value Added Tax, does not expressly define what is understood by housing for the purposes of VAT . The Taxation General Directorate traditionally defines a residence as a "building or part of a building used as the habitation or dwelling of an individual or of a family, comprising the home or main base of the home life of the family or individual".

“ first delivery ” of homes is understood to be those that are acquired from the developer when the construction or rehabilitation is completed, unless the homes have been used continuously for a period equal to or greater than two years by persons other than the purchasers.

That is to say, once construction is complete, if the property developer rents the residences and after two years puts them up for sale, if the residences are acquired by the renters, we are faced with a "first delivery". This shall not be the case if the residences are acquired by other persons.

Construction works on a home shall be considered to be complete when a works completion certificate is issued by the architect and the surveyor managing the project.

Tax applicable to the sale of homes and leasing with option to buy

• The sale of new homes by the developer (first deliveries of homes) are taxed by Value Added Tax (VAT).

• The sale of used homes by entrepreneurs (second and subsequent deliveries of homes) are subject to the Property Transfer Tax (Concept of Onerous Transfers) (ITP).

• The sale of homes by individuals is subject to the Property Transfer Tax (Concept of Onerous Transfers) (ITP)

The purchase of a new home implies that the buyer is obliged to pay the Value Added Tax, which is the result of multiplying the price of the home by the tax rate in force at the time of purchase. Payment is made to the salesman who will in turn pay the tax to the public Tax Agency.

The tax rates established for the sale of homes, including up to two garages per home and an annex located in the building that are transferred together, are currently as follows:

• In general, 10%,

• 4% when they are special system council homes or public housing.

The purchase of a used home entails for the buyer the payment of the Tax on Onerous Property Transfers, which he/she will pay to the Regional Treasury corresponding to the place where the property is located.

In lease contracts with purchase option of new homes , including up to two parking spaces per home and annexes located in the building that is leased Jointly, before exercising the option, the lease (provision of services) will be taxed by VAT, applying the tax rates of 10%, and 4% in the case of officially protected housing with a special regime or public promotion.

To determine whether a home purchase is subject to VAT or ITP you can use the Real Estate Qualifier, by accessing the link above, under "VAT Tools".