4% VAT on the purchase of a first home

4% VAT on the purchase of a first home: what is it and when can you get a discount?

VAT of 4% on the purchase of a first home is provided for certain categories of real estate. Here are the subjective and objective requirements that must be met.

When can you take advantage of the 4% VAT when buying your first home and what requirements must you meet to receive this benefit? These questions are often asked by those planning to buy a property for their primary residence, especially if the transaction is concluded with an organization that is a VAT payer, such as a construction company.

Normally, when buying a property from a VAT-taxable company (rather than directly from an individual), you will also need to pay Value Added Tax (VAT), which is usually between 10% and 22% of the property value. However, if certain conditions are met – such as buying a property that is not luxury and moving into a new apartment – you can benefit from a reduction in the VAT rate to 4%. This is in addition to other benefits already available for first-time home purchases, such as a reduction in the registration fee. These benefits can be used multiple times, provided certain conditions are met.

What does the 4% VAT on first home apply to?

As already mentioned, the purchase of a first home is not always carried out between private individuals. Often, real estate is purchased from a company subject to VAT, for example, when buying a new home directly from a developer. In such cases, the buyer is obliged to pay, in addition to the classic registration, cadastral and mortgage fees, also VAT. Without benefits, this tax can be from 10% to 22% of the value of the property.

As explained in the guide to buying a first home published by the Tax Agency (Agenzia delle Entrate), under certain conditions it is possible to benefit from the first home incentive, which provides for a reduced VAT rate of 4%. This measure was first introduced by the Finance Act of 1991 and was included in the Single Text on VAT. It has since been confirmed several times and is still in force today. The reduced rate also applies to the extension of existing buildings or the completion of new construction. But what conditions must be met to benefit from this incentive?

Subjective requirements for obtaining 4% VAT on the first home

In order to benefit from the 4% VAT, a number of subjective requirements concerning the buyer must be met. In particular, it is necessary to:

be an individual, since the benefit does not apply to legal entities, such as companies;
be a resident in the municipality where the property is located or have registered your place of residence there within 18 months from the date of purchase;
not own another property that is already being used as a first home;
not own or have rights to other properties that have already been used as a first home with benefits from the Tax Service. However, there are exceptions, for example if the first home is sold within 12 months of the conclusion of the contract for the purchase of the new property, or if the existing property is not suitable for habitation.

It is also worth noting that the 4% VAT for those under 36, if the legal requirements are met, can result in a tax credit equal to the VAT rate paid on the purchase of the property.

Objective requirements for obtaining 4% VAT on the first home

In addition to subjective requirements, there are also objective conditions for receiving VAT at the rate of 4% on the purchase of a first home. In this case, we are talking about the characteristics of the property that must be met for the benefit to be valid. Among these conditions are:

the type of real estate that must be registered in the cadastre as residential premises;
the purpose of the property must be exclusively residential and not commercial. This excludes properties intended for use as offices, shops, warehouses, etc.;
Property characteristics: it should not be elite (villas, castles), i.e. it should not fall into categories A/1, A/8 and A/9.

Of course, the property must be located in Italy and comply with national and local regulations regarding habitability, safety and usability.

Property categories eligible for 4% VAT

For convenience, after listing the types of real estate excluded from benefits, we will also list the permissible residential categories to which the VAT rate of 4% applies:

A/2: residential premises of a standard type with characteristics corresponding to market requirements for residential buildings;
A/3: economical housing with basic utilities;
A/4: Vernacular housing built using outdated standards;
A/5: ultra-popular housing with minimal utilities and sanitary facilities;
A/6: rural houses intended for agricultural activities;
A/7: small villas with adjacent external areas for private use;
A/11: Residential buildings typical for certain regions.

When does 4% VAT apply in construction?

It should be noted that VAT benefits of 4% apply not only to the purchase of real estate, but also to the construction of new buildings or the expansion of existing houses. In the construction sector, accordingly, you can take advantage of:

VAT of 4% on renovation work, such as purchasing materials to renovate your first home;
VAT of 4% on the construction of a new first home if it meets cadastral requirements and does not belong to categories A/1, A/8 and A/9;
VAT of 4% on the purchase of significant elements for the renovation of a first home, such as external windows, lifts and other similar elements.

How to get back 4% VAT on your first home?

In order to take advantage of the 4% VAT benefits for your first home, in addition to checking the above requirements, you must prepare the relevant documents. The application of the reduced VAT rate is not automatic and must be requested. To do this, you must provide:

a copy of the buyer's identity document and tax code;
a completed module to receive a preferential VAT of 4% on new buildings and transfer it to the company that will perform the work;
a copy of the building permit or, in the case of new buildings or renovations, the relevant notice of commencement of works (SCIA or DIA).

It is also useful to attach a copy of the notarial deed, a receipt for payment of the purchase or for the reconstruction work, and a statement confirming compliance with the subjective and objective requirements. The collected documents should be handed over to the real estate brokers or companies that carried out the transaction or the work.