VAT or Onerous Transfer tax in the purchase of a dwelling


Concept of first hand over in dwellings (new dwellings)

Understood as “first hand over” of dwellings are those that are purchased from the promotor when the construction or restoration is completed, with exception to those dwellings that have been continually used during two or more years by people other than the purchasers. In other words, if the promotor, once the works are completed, rent the dwellings and after two years these are put up for sale, and the dwellings are purchased by the same tenants, the handing over of same is considered as a “first hand over”, but not if these dwellings are purchased by other people than the tenants. The building works of a dwelling are considered as being completed when the architect and Surveyor in charge of the construction issue a certificate of end of works.

  • The first handing over of the dwellings (new dwellings) will be taxed with Value Added Tax (VAT).
  • The second and further handing over of the dwellings (second hand dwellings) will be taxed with the Transfer Tax (Concept Onerous transfer) (ITP).

Concept of dwelling and type of VAT applicable to the purchase and to the renting with option of purchase

Traditionally, the General Tax Board describes the dwelling as “building or part of same for use as habitation or abode of an individual person or a family, this being his/her home or the place of his/her domestic life". The Law 37/1992, dated 28th December concerning Value Added Tax, does not specifically describe what is understood as a dwelling with effect to VAT; however, when the tax rate applicable is established on the handing over of same it is laid down that the reduced tax rate of 10% is applied on the handing over of buildings for prime use as homes (buildings in which at least 50% of the constructed surface is for use as dwellings), including garages and dependencies located in same and that are sold together and, always that the number of parking spaces allocated to each owner does not exceed two units. The purchase of a new dwelling means that the purchaser must pay the Value Added Tax. The VAT payable by the purchaser is the result of multiplying the price of same by the tax rate in force at the moment of the purchase. The payment will be made to the seller, who will then deposit the tax in the Tax Office. The established tax rates at present are:

  • 10% in general.
  • 4% when dealing with dwellings under official protection and special system or those of public promotion.

In the rental contracts with option of purchase of buildings or parts of same for exclusive use as dwellings, including up to two parking spaces per dwelling and dependencias located in same that are rented together, before executing the option (rendering of services), the tax rate of 10% will be applied and, that of 4% in the case of dwellings under official protection and special system or those of public promotion. The purchase of a second hand dwelling means that the purchaser must pay the Onerous Transfer Tax and the purchaser himself will deposit this tax in the Regional Tax office corresponding to where the property is located.

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