This Thursday, the government-designated plan to promote the energy-efficient renovation of the Spanish housing stock will be launched, one of the objectives of the renovation plan channeling European funds. The Official State Gazette (BOE) yesterday published the regulations governing the executive branch’s package of measures, which is largely fueled by ambitious out-of-pocket aid and tax breaks. The recovery plan envisages 6,820 million euros for housing construction, with a particular focus on interventions to improve its efficiency. It is the Autonomous Communities that manage the amounts allocated.
Deductions and Allowances
The plan provides for three types of deductions and grants, two for private households and another directly for interventions in whole dwellings.
For example, for work on the main residence that reduces the heating and cooling requirements by 7%, which can be achieved by installing high-performance windows, a deduction of 20% is chosen, with a maximum of 5,000 euros per apartment and year. The deduction can be made in the tax period in which the energy certificate is issued, always before 01/01/2023.
Then interventions that reduce the non-renewable energy consumption of the house by 30% or improve the energy efficiency class to A or B can benefit from a 40% deduction, with the help of up to 7,500 euros per year.
In this case, the amounts paid can be deducted from October 6, 2021 to December 31, 2022 in the case of habitual residence or a rented house. Also in those offered on the rental market and rented before the last day of 2023. As in the previous case, an energy performance certificate is again required to validate the intervention.
In the last major assumption, in the case of energy renovation measures in residential buildings, where consumption falls by 30% or certification A or B is achieved, a deduction of 60% and a maximum of 15,000 euros is reached, in which case the time for the deduction has been reached the years 2021, 2022 and 2023 in relation to the respective amounts paid, provided that the certificate was issued before 1 January 2024.
The three deductions are incompatible with each other in relation to the same work. The deduction of 60% for amounts invested in the renovation of buildings is compatible with the deductions of 20% or 40% for domestic work, always bearing in mind that they are different works.
Income Tax and Value Added Tax
The Higher Council of Architects of Spain and the General Council of Economists of Spain have recently presented the Guide to Tax Reductions for Home and Residential Refurbishment, which sets out the new tax benefits and their link to the main taxes affecting the redevelopment activity. : VAT and personal income tax. The aim of the document is to make the potential of state aid and tax developments known to the general public.
Currently, these public grants are exempt from paying personal income tax. In addition, in the case of carrying out this type of reform without applying for the subsidy, the total investment can also be deducted up to the tax limit in the declaration. For the first time, such grants are exempt from income tax, a decision by the legislature to promote rehabilitation.
Regarding VAT, the reduced rate requires that the main purpose of the work is the construction of the building and the cost exceeds 25% of the purchase price. The guide offers a practical example: if the value of a building is one million euros, this amount must be divided between the part corresponding to the building – say 800,000 euros – and the part corresponding to the land – the remaining 20 euros % .–. In this case, the construction costs would have to be more than 25% of 800,000 euros, i.e. 200,000 euros, to be entitled to VAT at 10%.
cases from practice
As an example, the guide presents several practical cases that allow the impact of aid to be quantified. One of them is part of a major refurbishment in a building with 20 apartments as well as in them. The total cost of the work carried out in the building amounts to 600,000 euros, with a subsidy of 376,000 euros. Each owner must therefore reckon with an expense of 30,000 euros. However, between the direct grants and the total income tax deductions, the owner would receive a total of 25,520 euros, so the final cost of the works would only be 4,480 euros.
Another case concerns a job done at the habitual location that reduces heating and cooling needs by 10%. The amount of the action in this case is 5,000 euros and a direct grant of 2,000 euros was obtained, to which is added a bonus of 20%, which corresponds to a saving of 600 euros more. The actual costs of the intervention therefore drop to 2,400 euros.
The last example is that of a job carried out in a rented apartment, which represents a 10% reduction in heating and cooling requirements. The amount of the campaign is 9,000 euros and a subsidy of 3,000 euros was raised. In this case, the deduction for the characteristics and results of the intervention is 40% of the remaining 6,000 euros, ie an additional 2,400 euros. For all these reasons, the final cost of the works would be 3,600 euros.