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Finance

VAT on new homes and how it affects your mortgage

Are you familiar with VAT-free days? Value Added Tax (VAT) is an indirect tax levied on the consumption of certain products and services, and it can be standard, reduced, or super-reduced. This tax also applies to the real estate sector, specifically to the purchase of a new home.

If you are planning to buy a brand new house, you should keep in mind everything related to VAT on new homes.

Now you'll find out when it's paid, how much it is, and why it's so important.
Updated: 18 JUN 2026
PUBLICATION DATE: 24 MAY 2023

Summary

When is VAT paid on the purchase of a home?

When buying a home or any other property, you have to pay taxes. In some cases it will be VAT or Value Added Tax, and in others it will be Property Transfer Tax or ITP.

In which cases is each tax paid when it comes to a house? As a general rule, VAT is applied to the purchase of new housing and ITP is reserved for the purchase of second-hand housing.

In other words, when you buy a home in a new development , you will have to pay VAT, whereas if you buy it second-hand, usually from a private individual, it is no longer considered a first delivery and you will have to pay the Property Transfer Tax.

What VAT rate applies to the purchase of a new home?

VAT is added to the price of the property, and the specific percentage depends on the type of property. For tax purposes, a house bought directly from a developer is not the same as a subsidized housing unit. The VAT rate applied to each type of new property varies.

The default VAT rate applied to new-build properties is 10% (the reduced rate). This means that if a property under development costs €200,000, you will have to add an additional €20,000 in VAT.

There are two exceptions to the general rule. The first is VPO, or Officially Protected Housing, which is subject to a super-reduced VAT rate of 4% . The reason is that this housing is both affordable and protected, also in terms of VAT.

The second exception is commercial premises , which are subject to the general VAT rate of 21%.

Ultimately, this is similar to the reduced VAT on certain renovations, which is used to incentivize some projects over others or to help with projects for people with disabilities, for example.

When do you have to pay the VAT on the house?

VAT is paid when you buy a house, just like when you buy anything else. There's no difference in that respect between buying a car, a mobile phone, or a house.

In both cases the store (the promoter in this case) will collect the corresponding VAT and then send it to the Tax Agency (AEAT).

How does VAT affect the house you can buy?

VAT is an added expense to the price of a home, just like property transfer tax, and of course, it impacts the type of house you can buy. In fact, if you don't take it into account, you could be in for an unpleasant surprise when it comes time to sign the purchase agreement.

The VAT is not necessarily included in the advertised price. In fact, in most cases, newly built homes advertised do not include the VAT amount in the price.

Is VAT taken into account for the mortgage?

The second reason VAT affects the price of a house you can afford has to do with the mortgage. VAT is usually excluded from the mortgage or can be excluded from it.

To put it simply, most financial institutions will finance 80% of the purchase price or appraised value of the property, excluding expenses and taxes. In other words, you'll typically have to cover the VAT yourself, whether you take out a fixed-rate or variable-rate mortgage.
 
VAT on new housing

The UCI blog posts cover current issues that are intended to be useful to our readers. However, it is possible that some of the less recent posts contain out-of-date information, so it is necessary that you always check the publication date of the post.

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