VAT (IVA), works tax (ICIO) and deductions on renovation

Terms used

• IVA — IVA is Spain's value-added tax, added to the price of goods and services such as building work.
• ICIO — The ICIO is a municipal tax on construction, installations and works, charged as a percentage of their real cost.
• IRPF — IRPF is Spain's personal income tax.
• Agencia Tributaria — The Agencia Tributaria is Spain's national tax agency.
• Declaración responsable — A declaración responsable is a sworn statement filed with the town hall to start minor works without waiting for a licence.

Key rules

• IVA rate: Reform works on a home you live in are usually taxed at a reduced 10% IVA, while 21% applies when the conditions are not met.
• ICIO cap: The ICIO is set by each town hall, up to a maximum of 4% of the real cost of the works.
• Materials limit: Keep the contractor's materials within 40% of the total price to protect the reduced IVA rate.
• Energy deductions: Check with the Agencia Tributaria before you sign whether the energy-efficiency income tax deductions still apply.

Which IVA rate will you pay?

Reform works on a home you live in are usually taxed at a reduced 10% IVA. The general 21% applies when the conditions are not met.

The 10% rate needs all of these:

• You are an individual (or a community of owners) and use the property as your home.
• The building is mainly residential and over two years old.
• The contractor's materials are no more than 40% of the total price.

If materials go over 40%, the 21% rate applies to the part above that limit. Ask your contractor to split materials from labour on the quote and invoice. Works on commercial premises and new construction do not get the reduced rate.

This applies on the mainland and the Balearics. The Canary Islands, Ceuta and Melilla have different indirect taxes, so ask a local adviser there.

Temporary IVA reductions for energy measures, such as certain solar or efficiency installations, have come and gone. Ask the contractor and the Agencia Tributaria whether one applies to your works.

How does the ICIO work?

The ICIO is a works tax charged by your town hall, not by the state. Each town hall sets its own rate, up to a maximum of 4% of the real cost of the works. Most towns fall somewhere between 2% and 4%. Find your town's rate in its fiscal ordinance.

• What it is charged on: the real cost of the works, without IVA and other taxes. The contractor's profit and overheads are generally included.
• When it is due: it arises when the works start, even if the licence has not been issued yet.
• How it is paid: the town hall charges a provisional amount when you get the licence or file the declaración responsable. When the works finish, it adjusts the amount to the real cost, so you may pay more or get a refund.

The Basque Country and Navarre have their own rules.

Which deductions exist?

Income tax (IRPF) deductions for energy-efficiency works have existed in three tiers:

• 20% for works that cut annual heating and cooling demand by at least 7% (base cap 5,000 euros).
• 40% for works that cut non-renewable primary energy use by at least 30%, or lift the energy rating to A or B (base cap 7,500 euros).
• 60% for energy-efficiency works on whole residential buildings (cap 5,000 euros per year, 15,000 euros in total).

They were extended several times, most recently to 31 December 2025. Whether they apply to works you pay for now depends on a further extension, so ask the Agencia Tributaria before you sign the contract. If you may claim, you need an energy certificate from before and after the works.

Can renovation costs reduce tax when you sell?

Yes. Improvements that add value or lengthen the life of the home can be added to the purchase price, which lowers your taxable gain. Ordinary repairs and maintenance do not count. Subsidies you received reduce the amount you can add. You cannot add costs you already deducted, for example against rental income.

Keep the invoices, proof of payment, licence and contract. The documents list below shows what to hold on to.

Documents you need

• Invoices for each improvement, issued by the contractor, to prove what you spent when you later sell.

• Proof of payment for every invoice, such as bank transfer receipts.

• The works licence and the contract with the contractor, which the Tax Agency can ask to see.

Checklist

• Confirm the home is over two years old, mainly residential and used as a home, so the 10% reduced IVA can apply.

• Ask the contractor to split materials from labour and check that materials stay within 40% of the total price.

• Look up your town hall's fiscal ordinance for its ICIO rate, which cannot be above 4%.

• Budget the ICIO on the real cost of the works without IVA, and expect a final adjustment when the works finish.

• Ask the Agencia Tributaria whether the energy-efficiency income tax deductions apply to your works this year.

• Order the energy certificate before and after the works if you may claim an energy deduction.

Frequently asked questions

What happens to the IVA if the materials cost more than 40% of the contract?

If the contractor's materials are more than 40% of the total price, the 21% general rate applies to the part above that limit. The reduced rate also needs a home that is over two years old, used as a home by an individual or a community. Ask the contractor to show materials and labour separately on the quote.

Does the works tax (ICIO) apply if I have not got the licence yet?

Yes, the ICIO is owed from the moment the works start, even if the licence has not been issued. The town hall usually charges a provisional amount when you get the licence or file the declaración responsable (a notice that you are starting works). It adjusts the amount once the works finish, based on the real cost without IVA and other taxes.

Are the energy-efficiency income tax deductions still available?

They ran for works paid up to 31 December 2025 after several extensions, and you needed an energy certificate from before and after the works. Whether they continue for 2026 depends on a further extension, so ask the Agencia Tributaria, Spain's tax agency, before you count on one.