Lease agreements with purchase options for housing will be subject to VAT

The legal nature of lease agreements with purchase options for housing has raised doubts regarding their tax treatment. Recently, the Dirección General de Tributos (DGT) has clarified the classification of these operations within Value Added Tax (IVA), determining that they do not benefit from the exemption applicable to other leases when the delivery of the housing is classified as a first delivery of buildings.

What the DGT has resolved

The tax administration has established that lease agreements with purchase options for housing are subject to IVA. This criterion is based on the fact that the delivery of said housing is considered a first delivery of buildings, in accordance with the provisions of Article 20.One.22º of Law 37/1992 on IVA.

As it is classified as a first delivery, the exemption that might exist for other types of leases is not applicable. Likewise, the ruling confirms that the subsequent transfer of the housing, resulting from the exercise of the purchase option, is also considered a first delivery and, therefore, is subject to the tax. In the case of operations carried out with partners, the regulations require that the taxable base be determined according to the normal market value if a related-party relationship exists.

What it means for you

This criterion has a direct impact on the operations of developer cooperatives that use this business model. For these entities, the obligation to charge IVA on the delivery of the housing and on the subsequent transfer must be integrated into their cost and pricing structure.

For tenants or partners who decide to exercise the purchase option, this implies that they must bear the impact of the IVA in the operation. In situations involving a relationship with the developer entity, it is fundamental to keep in mind that the price of the operation cannot be lower than the market value to avoid adjustments to the taxable base.

What should be done

Given the application of this criterion, it is necessary to evaluate the structure of the lease agreements with purchase options used in developments. It must be verified that the determination of the taxable base complies with the market value requirements in operations with related parties and ensure that the tax charge is managed correctly at each stage of the housing transfer.