My first place to rent
Patrick Gordinne Perez2025-01-26T04:05:51+00:00You want to invest in real estate, and you have the opportunity to buy a used, already rented property that offers a good return on investment.
Who hasn’t thought about buying a property to make a profit from it? In principle it is a good idea and here we will give you some tips so that you don’t have to pay too much tax.
We are going to talk about the reverse charge, often unknown when it comes to buying premises.
And a good tool when buying and renting premises.
If this will be the first premises you will be renting, take a look at some tax issues to consider.
Taxation of the purchase of premises
Waiver of VAT exemption
Second transfer
If you purchase a used property, as it is a second transfer, the purchase will be exempt from VAT.
Therefore, in principle, you will have to pay Transfer Tax (ITP-TPO) at a rate of between 6 and 11% (depending on the autonomous community) on the higher value between the transfer value and the reference value of the property (premises do not usually have a reference value, for the moment).
There are some exceptions to this rule.
Thus, second supplies of immovable property are subject to VAT in the following cases:
- When they are made in the exercise of a purchase option inherent in a lease contract by companies engaged in financial leasing.
- When the building is to be refurbished by the purchaser.
- When the building is to be demolished prior to a new development.
ITP-TPO stands for transfer tax – impuesto sobre transmisiones patrimoniales onerosas – transfer of property for valuable consideration
To rent the premises with VAT.
The ITP-TPO tax is a problem because, unlike VAT, the ITP tax is not deductible and implies a higher purchase cost.
However, remember that it is possible to waive the VAT exemption, so that VAT is levied instead of the ITP-TPO.
This is possible if the following conditions are met:
- If you intend to use the property in an activity that will entitle you to deduct all or part of the VATpaid (if you are going to rent it out charging VAT, this requirement will be fulfilled).
- VERY IMPORTANT AND if the seller is a businessman and is using the property in his business (for example, if he is a lawyer who has his office there, or if he is a real estate agent who carries out his business there, or if he simply rents the property to a third party), this requirement is met.
Effects of the waiver of ITP
Stamp duty stamp duty (AJD)
It could not be all good news, as you will be renting the premises with VAT, waiving the exemption will generally be in your best interest:
- If the waiver is agreed, the vendor will have to invoice the sale of the premises exclusive of VAT.
- In this case, the so-called “reverse charge” (ISP) will occur, so that you will have to deduct the VAT in the quarterly tax return applicable to the transfer (21% in the case of premises).
This self-deduction will not entail a higher cost for you, since in principle, as the premises will be rented with VAT, you will also be entitled to deduct the input VAT.
- You will only have to pay the stamp duty (ITP-AJD).
This tax varies between 1.5 and 2.5% of the assignable value of the property, depending on the autonomous community.
This tax will be added to the value of the premises for its depreciation.
Although the purchase is subject to VAT and is exempt from ITP, it is a transaction that is formalised in a deed before a notary and registered in the Land Registry, so it is subject to AJD.
When the VAT exemption is waived, the AJD required by the Autonomous Communities is usually higher than in other transactions (in other cases, the tax rate is usually between 1 and 1.5% of the deed value).
Example of waiver of ITP
Ejemplo de inversión del sujeto pasivo
Usted adquiere un inmueble usado por 200.000 euros (el valor de referencia es inferior).
Si el ITP-TPO de la comunidad autónoma es del 8% y el ITP-AJD en caso de renuncia a la exención de IVA es del 2%, dicha renuncia le permitirá ahorrarse 12.000 euros:
Concepto Con renuncia Sin renuncia
IVA rep. 21% 42.000 (1) –
IVA deducible 21% – 42.000 (1) –
ITP-AJD 2% 4.000 –
ITP-TPO 8% – 16.000
Coste fiscal 4.000 16.000
1. You will have to charge VAT yourself, so you will have to declare at the same time a higher output VAT and a higher input VAT (which will be deductible).
As indicated above, in these cases the seller does not have to charge VAT on his invoice; it is sufficient that, when issuing the invoice, he includes a statement such as “Reverse charge transaction in accordance with Article 84.1.2.2.e) of the VAT Law“.
Communications
On the other hand, there are a number of communication obligations between the parties which are essential for the VAT exemption and the ISP reverse charge to be applied
- The seller must inform you in writing that he is waiving the exemption.
- You, for your part, must inform him that, in connection with the purchase and for VAT purposes, you are acting in your capacity as a businessman and are entitled to
- to deduct all or part of the input VAT.
- Such statements may be included in the deed of sale itself, without any additional communication being required.
Beware of pro-rata
Check if you are on a pro-rata basis
Do you do other activities?
As stated above, since you intend to let the premises with VAT, you will in principle be entitled to deduct the VAT you bear on your purchase and this tax will not cost you more.
However, this may change if, at the time of acquiring your first premises to let, you are carrying on any activity for which you do not have to charge VAT.
In case you are obliged to apply the pro-rata regime (because you carry out one activity with VAT and another one which is exempt), you may not be able to deduct all the input VAT for the premises.
Same sector differentiated
You are obliged to apply the pro-rata regime if the other activity you are carrying out forms part of the same sector as the activity of renting premises.
This will be the case if both activities have the first three digits of the CNAE in common or if the deduction percentage of the other activity with respect to the rental of premises does not differ by more than 50 points.
If the two activities are not part of the same distinct sector (i.e. if they are part of two different sectors of activity), the input VAT is deductible separately in each sector, so you can deduct all the input VAT for the premises.
Rental housing
The most common case of application of the pro-rata regime is if, at the same time as the premises, you are also renting a dwelling (an exempt activity that does not entitle you to deduct VAT and which has the same three-digit CNAE as the rental of premises -CNAE 682-).
In this case, if you do nothing, in the VAT return for the quarter in which you acquire the premises, you will have to provisionally apply the previous year’s pro-rata, which will be 0%, the previous year’s pro-rata, which will be 0% (you will not be able to deduct anything at that time).
At the end of the year you will be able to regularise the deduction according to the pro-rata.
However, even if you have income from renting the premises, the pro-rata will still not be 100%, so you will not be able to deduct all the VAT paid on the purchase of the premises.
In the following years, you will have to apply the reverse charge system if the definitive pro-rata for each year differs by more than ten points from that of the year of purchase of the premises.
Opt for the special apportionment
What is the special apportionment?
Well, to avoid this problem and to be able to deduct all the VAT on the premises from the beginning, opt for the so-called special apportionment.
With this type of apportionment, the input VAT on the purchase of goods and services used exclusively in the business of renting the premises will be 100% deductible.
Applying for the special deductible proportion
When you start the new activity (if applicable, the rental of premises), you can opt for the special pro-rata until the end of the filing period corresponding to the period in which you start earning income.
To do so, you must file a census return (form 036).
In this way, you can deduct the input VAT for the premises from the outset.
In general, the option for the special deductible proportion must be made in the last VAT return of the year.
However, when starting a new activity different from the one you have been carrying out, you can opt for it earlier.
If you are buying second-hand premises, you can apply for a waiver of the exemption and deduct VAT yourself, avoiding paying ITP-TPO .
If you already have a rented property, apply for the special apportionment to be able to deduct all the VAT on the premises.