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

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

Act 37/1992, of 28 December, on Value Added Tax, does not expressly define what is meant 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 as those acquired by the developer when the construction or renovation is complete, unless the homes have been used continuously for a period of two years or more by people other than the buyers.

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) is taxed for Value Added Tax (VAT).

• The sale of homes used by employers (second and subsequent deliveries of homes) are taxed under Property Transfer Tax (Concept of Public Transfers) (ITP).

• The sale of homes by individuals is taxed for Property Transfer Tax (Concept of Public Transfers) (ITP)

The purchase of a new home entails the buyer's obligation to bear the Value Added Tax, which is the result of multiplying the price of the property 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 property means the buyer pays the Tax on Public Property Transfers, which he will pay in the Autonomous Regional Treasury corresponding to the place where the property is located.

In lease contracts with option to purchase new homes, including up to two parking spaces per home and annexes located in the building that is rented together, before exercising the option, the lease (provision of services) will be subject to VAT, the tax rates of 10% apply, and 4% in the case of housing with official protection of 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".