Have you heard of the VAT-free day? Value Added Tax is an indirect tax levied on the consumption of certain products and services and can be general, reduced or super-reduced. This rate is also applied in the real estate sector and, specifically, on the purchase of a new home.
If you are planning to buy a brand new home, it is important to keep in mind everything related to VAT on new homes.
Now you will find out when it is paid, how much it is and why it is so important.
When is VAT paid on the purchase of a home?
When buying a home or any other asset, you have to pay taxes. In some cases it will be VAT or Value Added Tax and in others it will be Transfer Tax or ITP.
In which cases is each one paid when it comes to a house? As a general rule, VAT is applied to the purchase of a new home and the ITP is reserved for the purchase of second-hand homes.
That is, when you buy a home from a new housing development , you will have to pay VAT, whereas if you buy it second-hand, generally from a private individual, it is no longer considered a first delivery and you will have to pay the Property Transfer Tax.
What VAT is applied to the purchase of a new home?
VAT is added to the price of the property and the specific percentage will depend on the type of property. For the Treasury, a house that you buy freely from a developer is not the same as a social housing property. The VAT applied to each type of new property is different.
The default VAT rate for new homes is 10% (the reduced VAT rate). This means that if the house on sale costs €200,000, you will have to add €20,000 more in VAT.
There are two exceptions to the general rule. The first is VPO or Official Protection Housing, to which a super-reduced VAT of 4% is applied . The reason is that it is affordable and protected housing, also in terms of VAT.
The second exception is commercial premises , to which the general VAT rate of 21% applies.
In the end, this is something similar to the reduced VAT on certain reforms , which is used to encourage some works over others or to help in works for people with disabilities, for example.
When do you have to pay VAT on a house?
VAT is paid when you buy a house, just like when you buy anything else. There is no difference between buying a car, a mobile phone or a house.
In both cases, the store (the promoter in this case) will charge the corresponding VAT and then forward it to the Tax Agency (AEAT).
How does VAT affect the house you can buy?
VAT is an added cost to the price of the property, just like the ITP and, of course, it has its impact on the house you can buy. In fact, if you don't take it into account you may get an unpleasant surprise when the time comes to sign the purchase of the house.
And VAT does not have to be included in the advertised price. In fact, in most cases, new-build homes that are advertised do not have VAT added to the price.
Is VAT taken into account for the mortgage?
The second reason why VAT has an impact on the house you can afford has to do with the mortgage. VAT is usually not included in the mortgage or can be included in it.
To help you understand better, most financial institutions will finance 80% of the purchase or appraisal value of the property without including expenses and taxes. In other words, it is most common that you will have to contribute the VAT money yourself, whether you request a fixed or variable rate mortgage.
