Are you building your own home in Spain? Make sure you store all VAT invoices!

Raymundo Larraín Nesbitt, March, 21. 2022

Marbella-based Larraín Nesbitt Abogados (LNA) has over 19 years’ taxation & conveyancing experience at your service. We offer a wide range of 50 legal and corporate services. Our team of native English-speaking lawyers and economists has a long track record successfully assisting expats all over Spain.

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By Raymundo Larraín Nesbitt
Lawyer - abogado
21^st of March 2022

Building your own home is likely the cheapest option in Spain, saving you hundreds of thousands of euros, if not more. Many owners resort to it. They buy an empty plot of land and hire professionals do build them their dream home.

When you build your own house in Spain you are legally branded as a self-developer. This means you take on the role of a developer. Being a self-developer is a smart move, but it has associated a series of legal and financial responsibilities you should be aware of.

In today’s post we are only going to focus on the importance of storing VAT invoices issued under your name on building a property.

When you build your own home, you will normally hire a series of professionals such as an architect, project manager, builder, lawyer, and accountant. All these professionals will issue you VAT invoices for their professional services. Moreover, the builder will continuously supply you with a slew of invoices on all the building materials used.

The importance of storing all VAT invoices, is that they can later on be used by yourself to greatly (and I mean greatly) mitigate your seller’s tax bill. All these VAT invoices may be offset, dramatically reducing your capital gains tax (CGT).

I have witnessed first-hand how some self-developers, who were unadvised, had to face a huge CGT on selling because they had failed to store said VAT invoices.

In simplified terms, we can see this with an example. Imagine someone buying a plot of land for 100,000 euros and building a house with a further cost of 200,000 euros. This owner can then sell on the property for 700,000 euros. That’s a 400,000 euros profit that is taxable.

Without taking any action, a non-resident seller can face a huge CGT bill of 96,000 euros.

However, on following our advice, he can cut down his tax bill by 50%, or more.

It’s important to preempt this tax issue from the start, so when you do happen to sell the property further on, your tax bill will be as low as possible.

Planning ahead is key to mitigate your tax bill on selling property.

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y el verde nuevo brotaba

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todo cargado de flor

-recordé-, yo he maldecido

mi juventud sin amor.

Hoy en mitad de la vida,

me he parado a meditar...

¡Juventud nunca vivida,

quién te volviera a soñar!"

– Antonio Machado.

Antonio Cipriano José María y Francisco de Santa Ana Machado y Ruiz (1875 – 1939). Brilliant Spanish poet and one of the leading figures of the Spanish literary movement known as the Generation of ’98. Died in exile during the fratricidal Spanish Civil War. He is credited as being one of Spain’s most popular poets. Amongst his timeless classics, Campos de Castilla stands head and shoulders above the rest.

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