How to deduct the vat on a property?
You will agree with me if I tell you that deducting the vat on a property is one of the most complicated things in the rental world.
But don’t worry, with this article you will find out what alternatives you have to deduct the vat you have paid for buying a new home.
In it, we will explain the activities that allow you to deduct the vat on a property without doing any fiscal engineering.
You are going to buy a new home, so you are going to pay VAT. If your intention is to rent the property, see what alternatives are available to you to deduct the VAT paid on the purchase.
Rent the property with VAT
Avoid the cost of VAT
You are buying a new property for rental purposes. For the purchase, you will incur a VAT of 10%.
However, as rental housing is exempt from VAT, you will not be able to deduct the input tax unless you use the purchased property for a VAT-paid (i.e. non-exempt) rental activity.
See some of these activities that will allow you to charge VAT and therefore deduct input tax on the purchase:
- Renting to businesses . If you rent the property to companies so that they can use it for their activity (for example, a law firm).
- Renting to a real estate agency. If you give it to a real estate agency to sublet it (a common case in tourist flat rentals). Yes, the transfer of your house to be rented to another company is subject to VAT.
- Renting with hotel services. If you rent it to individuals on a temporary basis but offer, during the stay, hotel services (daily cleaning, periodic change of bed or bath linen, breakfast or dinner service…).
You will have to register with the tax authorities and pay VAT on a quarterly basis.
However, so that the tax authorities do not object to the VAT deduction, you must prove that you intended to use the property for one of these activities from the time of purchase.
To do this, register with the tax authorities and start the procedures to carry out the activity (for example, sign a pre-contract with the real estate agency, apply for the necessary permits at the town hall to use the property as a tourist accommodation, etc.).
Bad news: regularisation of investment goods.
Regularisation of vat
In the event that you later decide to change the destination of the property and rent it out to private individuals (where the rental is exempt from VAT):
- If you do so after the period for the regularisation of investment goods has elapsed (which covers the year in which you start renting with VAT and the following nine calendar years, i.e. 10 years), the VAT initially deducted will be correct and you will not have to do anything.
- However, if you start renting out the property without VAT before this period has elapsed, you will have to apply the capital goods adjustment for the remaining years until the end of this period.
Example of annual adjustment of capital goods
If you buy the property in 2024 for 250,000 euros plus 25,000 euros VAT and that same year you rent it with VAT to a real estate agency that sublets it to tourists, you will be able to deduct this tax and apply for a refund.
If on 1 April 2030 you terminate the contract with the real estate agency and start renting the property directly to private individuals (so that in that year you have rents with VAT and without VAT, your pro-rata being 25%), you will lose the right to deduct the input VAT. Therefore, he will have to make the following regularisations until 2033:
| Year | Prorrata | Regularisation | VAT to be returned |
| 2030 | 25% | Sí (2) | 1.875 (3) |
| 2031 | 0% (1) | Sí | 2.500 (3) |
| 2032 | 0% | Sí | 2.500 |
| 2033 | 0% | Sí | 2.500 |
From 2031, all rents are VAT exempt and the pro-rata is 0%.
Both in 2030 and in the following years, the applicable pro-rata differs by more than 10 points from that of 2024 (which was 100%), so that part of the VAT deducted for the purchase needs to be regularised.
VAT deducted in 2024 to be refunded to the tax authorities.
Rent the property to a company or real estate agency, or lease it to private individuals offering hotel services. In this way you will charge VAT on the rental, which will entitle you to deduct the input tax on the purchase of the property.
