Operario en reforma de vivienda

Reduced VAT on Home Renovations: How Much Is It and When Can It Be Applied?

If you’re thinking about renovating your home, it’s helpful to know that you might be eligible for a lower VAT rate. Although many people pay the standard 21% VAT on construction work, in certain cases a reduced rate of 10% can be applied, which could mean significant savings in your final budget.

What are the requirements to apply the reduced VAT rate?

çSince April 14, 2010, the Spanish Tax Agency allows a 10% VAT rate on improvement and repair work in buildings intended for residential use, provided that certain conditions are met:

  1. Who hires the work: The client must be a private individual who uses the home for living purposes, not for professional activities. It also applies to homeowners’ associations when the renovation affects the building where the homes are located.
  2. Age of the property: The house or building must have been constructed or renovated at least two years before the work begins.
  3. Materials included in the work: If the company in charge of the renovation supplies materials, their cost must not exceed 40% of the total invoice in order for the reduced rate to apply.

What materials count as “supplied”?

“Supplied materials” are considered to be physical elements that become a permanent part of the home after the renovation, such as flooring, bricks, bathroom fixtures, tiles, or countertops.

On the other hand, scaffolding, tools, or machinery used only during the work, as well as household appliances, are not included under this concept.

What types of work can benefit from the reduced VAT?

Since this measure was approved in 2010, the reduced VAT rate can be applied to various renovation works, including:

  • Electrical work
  • Installations in general
  • Plasterwork
  • Plumbing
  • Masonry
  • Carpentry
  • Painting

Keep in mind that, in addition to the work falling into one of these categories, it’s essential that the cost of materials does not exceed 40% of the total renovation value in order to apply the 10% VAT rate.

What types of work are excluded from the reduced VAT?

There are certain cases where the reduced rate cannot be applied, mainly because materials represent a very high portion of the total cost. Some examples include:

  • Installation of heating systems or double-glazed windows
  • Installation of digital TV systems, telephone, or internet connections

In these situations, since the material cost exceeds the 40% threshold, the general VAT rate of 21% applies.

Conclusion

Understanding the conditions for applying the reduced VAT rate on renovations can make a big difference in the final cost of your project. Check whether you meet the requirements and seek professional advice to ensure you’re applying the correct tax rate. A small tax advices can turn into major savings!