Among the most frequent doubts presented by buyers of new construction flats are the ones referring to the types of expenses that a house of this character entails. Therefore, we answer the question about the VAT on the new development flats have and we help you calculate it in the most accurate way.
But first, let’s define what we mean by new or new construction flats. Thus, a home is considered new when the acquisition is made directly to the developer and the property is delivered once the construction process is completed. In this case, the type of VAT that you will have to pay will be different from the ones considered second hand.
There are two possible cases in which we can understand that we are talking about new development, but that they are exempt from paying VAT.
1. New housing but belonging to the bank. This situation is frequent when a real estate developer sells directly to the bank and there is a complete transfer of the property. Thus, the house would be considered as second hand but really, has not been used before. Here, the new owner will have to pay the ITP (property transfer tax) instead of VAT.
2. Housing that has been rented for two years and that still belongs to the promoter responsible for its construction. When this situation occurs, the new development will be considered second hand and will also be exempt from VAT.
VAT on New developments, how do we calculate it?
Now that you have the concept of new development clear, we are going to focus on the types of VAT that currently exist, although we will explain more closely the reference to new construction flats.
VAT or Value Added Tax is the tax levied on the purchase of certain goods or services and which imposes a tax burden on the consumer. In this post, we are going to talk about VAT on real estate-type property.
The VAT rates updated to this 2019 are three: General, reduced and super-reduced VAT. Each one of them applies to certain goods or services. In the following infographic you can see a good summary about the VAT rates applicable in Spain and the activity or service they charge.
In order to answer the question about VAT on the new development flats, as you can see in the previous infographic, the reduced rate is applied. That is, the purchase of a new construction flat will entail a VAT of 10% on the current value of it. To calculate it, you can use a simple mathematical formula. In this way, you will know quickly and easily what is the amount you will have to pay in your specific case.
VAT = Tax rate x New development price
Therefore, what you will pay for VAT will be the current price of your home (market value) multiplied by the tax rate. This amount will be paid directly to the seller, who will be required to pay the tax into the Public Treasury.
VAT for other types of homes
To finish complementing this post, we want you to know the type of VAT that is applied to other homes. At this point we are going to refer to second-hand houses, official protection, public protection or free housing. Thus and according to the law, the VAT rates applicable according to the type of house are:
– VPO (Official Protection Housing): super reded rate (4% VAT).
– Public Protection Homes and new homes sold freely: reduced rate (10% VAT).
– Second hand housing. As we indicated at the beginning of this post, second-hand homes do not pay VAT but they are subject to the Transfer Tax (ITP). This amount is established between 6% and 10%, depending on the autonomous community where the purchase occurs.
Finally, we remind you that in addition to VAT in a new development, you must pay the Tax on Documented Legal Acts (IAJD) that is established in a maximum of 0.75% of the deed amount.
We hope that after reading this post, you have clear what VAT have the new developments. And remember that if you are looking for new house/flat, in Caralca we have new developments located in different parts of the country and you can find out just by visiting this link.