What is the Value Added Tax on newly built homes

The new homes are a great attraction for those families who want to form a new home and who want to do so taking into account aspects such as sustainability, energy efficiency, customization and home automation, among others.

When acquiring this type of housing, you should know that they have a number of peculiarities at the tax level compared to the purchase of a second-hand property. Thus, the taxes to be paid for a newly built property are different. In these transactions it will be necessary to pay the Value Added Tax.

What is Value Added Tax?

The Value Added Tax – better known as VAT – is a tax levied on consumption in various sectors, including the purchase of services.

This tax is compulsory in most countries and is implemented throughout the European Union. In every commercial transaction, those involved must consider VAT when issuing invoices or determining the total cost of the price of products.

VAT on new housing

VAT only applies to newly built homes, not to second-hand properties. Instead, these must face the Tax on Patrimonial Transactions, ITP (Impuesto de Transacciones Patrimoniales).

According to Law 37/1992 – of December 28 – regarding Value Added Tax:

• “Purchasers of new properties intended primarily for housing must pay the tax rate in force at the time of the transaction. This applies to buildings where at least 50% of the constructed area is intended for real estate and includes garages and annexes transmitted jointly (provided that the number of parking spaces designated to each owner does not exceed two units).”

In Spain, VAT on newly constructed homes is 10% of the value of the property. The buyer makes the payment to the seller, who is responsible for paying it to the tax authorities.

Are there any exceptions to the payment of Value Added Tax?

The answer is yes. There are special cases in the disbursement of this tax:

Properties subject to specific regimes, such as those classified as official protection – commonly known as VPO – or those that are part of public promotions, enjoy a VAT reduction, which can reach up to 4%.

Other expenses to be paid when buying a property

As mentioned above, the taxes to be paid differ when purchasing a newly built homes, as this is considered a commercial transaction, unlike the purchase of a second-hand property, which is classified as a transfer of assets.

However, when acquiring a property – whether newly built or second-hand – there are other expenses that must be taken into account. What are they?

• Notary fees: the cost of formalizing the sale and purchase of the property before a notary is regulated and varies between 0.2% and 0.5%.

• Registration costs: when registering the newly acquired property in the Land Registry, a fee of between 0.1% and 0.25% of the value of the property must be paid.

• Payment of the administrative agency: the agencies usually charge for carrying out the necessary administrative procedures in a purchase-sale.

• Value of the appraisal: if it is necessary to take out a mortgage to finance the property, you must pay, by law, the appraisal costs of the property, as well as the copy of the mortgage deed.

Find the home you have always dreamed of

In KM2 Real Estate Services we have more than 41 years of experience in the sector.

A trajectory that has allowed us to be great connoisseurs of the market and to help day after day to countless owners to find the property that best suits their needs.

We have a team specialized in legal support in the formalization of negotiations and closing to ensure the legality of each of the sale and purchase process.

We invite you to see all the properties available now, here.

Do you want more information? Contact our consultants or visit our real estate agencies in Barcelona and Madrid, we are waiting for you!