VAT is one of the main taxes levied on the purchase of a new home, so knowing how to calculate it will be a great help in making your decision. We’ll explain the tax rates that apply to different types of homes to help you find the perfect home.

If you’re thinking about investing in a new home, you should know that beyond the purchase price, becoming a homeowner also involves paying taxes such as VAT, which you should carefully consider before making your final purchase decision.

Do you want to know how much VAT is charged on new construction? What are the differences compared to the resale housing market? What taxes apply when buying a new home? Keep reading, and we’ll answer all your questions!

What is a newly built home?

Before analyzing in detail the Value-Added Tax (VAT) and other taxes involved in the purchase of a home, it is important to understand the differences between a new-construction home and a pre-owned home. The Tax Agency considers new-construction homes to be those purchased from the developer once construction or renovation is complete. Once construction is complete, the architect and the construction manager in charge of the project are responsible for certifying this by signing the certificate of completion, which is essential for the property to be listed on the real estate market.

On the other hand, homes that go on the market after having been continuously occupied for a minimum of two years are classified as resale homes, subject to different taxes than new construction homes. However, if the developer rents a new-construction apartment to third parties other than the owners for a period of less than two years, these properties are still considered new-construction homes for tax purposes.

What is the VAT rate on a new home?

Now that we know its characteristics, how can we calculate the VAT on the purchase of a new home? For newly constructed properties, the amount of this tax is equal to 10% of the registered purchase price. This same percentage also applies to parking spaces—up to a maximum of two per home—and ancillary spaces, such as storage units.

If your new home is located in the Canary Islands, you should know that new construction in this autonomous community is subject to the Canary Islands General Indirect Tax (IGIC), which amounts to 6.5% of the property’s value in 2022.

In the case of social housing under a special regime or new public housing developments, the VAT on the home is reduced to 4% of the total value of the property as stated in the deed. In some autonomous communities, this super-reduced VAT rate for new construction also applies when the buyers are large families, people with disabilities, or young people, provided that the property is being purchased as their primary residence.

It is also important to note that if your new home has more than two parking spaces, these spaces will be subject to a 21% VAT. The same applies to commercial properties, even if part of the building is used for residential purposes.

What VAT rate applies to resale homes?

When a home has been occupied for more than two years, it is no longer considered a new construction home for tax purposes. Consequently, if we choose to invest in a pre-owned home, we will not have to pay the VAT on new construction, but there are other taxes we must take into account. The main one is the Property Transfer Tax (ITP), which is administered by the autonomous communities.

Regional governments may set the rate of this tax within a range established by law. Currently, the ITP typically ranges from 6% to 10% of the purchase price, although some regions have reduced rates; therefore, before making a decision, it is advisable to find out the exact rate you will have to pay in your future place of residence.

Practical Examples for Calculating VAT on New Construction

The VAT rate for a new home is always the same—except for the exceptions mentioned above—regardless of the type of home you’re interested in or the town where it’s located. However, since it depends on the sale price, the amount you’ll pay in VAT will vary from case to case. To help you understand this, let’s look at some practical examples!

Let’s imagine you’re interested in moving into a newly built home in a major city, such as Madrid or Barcelona. In Madrid, you can find three- and four-bedroom apartments with spacious common areas—ideal for families—with a sale price of 263,400 euros. In this case, the VAT would amount to 26,340 euros. If you prefer to live in Barcelona, three-bedroom apartments are available in the Sant Andreu neighborhood starting at 320,000 euros. For this new-construction home, you would pay 32,000 euros in VAT. At Culmia, we have new-construction developments for living in Madrid or Barcelona.

Other taxes and expenses associated with buying a home

While the VAT on new construction is the main tax we must pay when purchasing a home, this transaction also involves other additional expenses for the buyer. Since the 2019 Mortgage Law took effect, notary and registration fees, as well as the Stamp Tax, are covered by the bank granting the mortgage. If you’ve hired a real estate agency to handle the purchase of your new home, you’ll also need to factor in their fees when calculating the total cost of the transaction.

On the other hand, becoming a homeowner—whether the home is new or pre-owned—also involves paying taxes such as the IBI and homeowners’ association fees. The IBI for a home depends on its assessed value and the tax rate set by each city council, ranging from 0.4% to 13% depending on the municipality.

If you want to learn more about the taxes and expenses involved in investing in a new home, our guide to buying a home explains in detail how to plan your purchase, with helpful tips to help you find the right home, based on your needs and budget, as well as information on all the steps to follow until the deed is signed and the keys are handed over. This way, finding the perfect home will be much easier!