Where the buyer of the plot is an individual there are two options, depending on the nature of the vendor, which is to say:
- If you buy a plot and the vendor-builder subsequently builds a house for you, you are liable for 10% VAT on the development.
- If you only buy the land (without any obligation to build on it) you are liable for 21% VAT if the owner is a Company and 10% if the owner is an individual. In addition, you are liable for 10% VAT on any new construction on the property.
Other expenses to bear in mind when buying a plot are Notary and Land Registry fees (both approx 0.5%)
We should also clarify the differences between your legal position in one case or another:
- If you buy a finished house (plot & build) you are legally considered a buyer-user and thus covered by Law 57/1968 which obliges the developer to guarantee, either by bank guarantee or insurance policy, all monies paid on account.
- However, if you buy a plot and then build a residence on it you are considered an auto-developer.
This is an important point because both the obligations and the responsibilities of buyer-consumers and auto-developers are quite different.
- If you buy a finished house (plot & build) from a Company you are considered the end user and therefore not responsible for obtaining licences, permits, certificates of first occupancy etc... or indeed issues that may arise thereafter due to urban planning regulations. Simply put, you have no other responsibility but to pay the developer the agreed sum.
- However, if you buy a plot and then build on it as the owner you are considered an auto-developer and, as such, are liable to third parties to comply with urban planning regulations, obtain licences and certificates of first occupancy etc... It should be noted that this also includes structural issues such as cracks, subsidence and damp. With regard to structural issues, if you sell the property to a third party you become legally liable to that person as, being an auto-developer, you are considered equally responsible as those involved in the construction (builders, architects, surveyors etc)
Where the buyer of the plot is a Company, said Company can deduct the VAT from the price of the land and the cost of building the house.
The Company must however work as a building company and carries a series of duties and responsibilities such as registration with IAE, quarterly VAT, Company tax statements etc.
This guide is intended as a brief resumé of general information and does not constitute legal advice.
You may be also interested in reading about our Basic Guide and Regulations to Build in Moraira.
