Breakup does not guarantee reinvestment exemption if it does not necessitate a change of residence

The application of the reinvestment exemption on the primary residence is a matter of particular relevance for individuals who sell their home to acquire another. However, compliance with temporal and habitual residency requirements is strict, especially when the minimum period of three years of residence in the transferred property has not been reached.

What the DGT has ruled

The Dirección General de Tributos (DGT) has analyzed the possibility of applying the exemption provided for in Article 38 of the IRPF Law when the taxpayer has not resided in the home for the required three years but is facing a breakup of cohabitation. The Administration's criterion is clear: for a home to be considered habitual without having met the three-year period, circumstances must exist that necessarily require a change of residence.

The regulations do not specifically include a breakup of a couple, nor does the Administration consider it an analogous circumstance by default. In this sense, the DGT determines that:

• If the change of residence is a voluntary decision of the taxpayer following the separation, the habitual residency requirement is not met.
• The breakup of cohabitation does not automatically imply the need to change residence to maintain the status of a primary residence.
• The assessment of whether a specific situation imposes the need to change residence is the responsibility of the management and inspection bodies.

What this means for you

If you plan to sell your current home to reinvest the amount in a new residence, but you have lived in it for less than three years, you will not be able to claim the reinvestment exemption based solely on the fact that you have experienced a breakup. For the Administration to accept the exemption in this scenario, you must demonstrate that the breakup situation inevitably forced you to leave the home, rather than it being a personal choice following the separation process.

What you should do

In a situation like this, it is fundamental to analyze whether there are other elements that prove the imperative need for the move. Since the interpretation of whether a circumstance requires a change of residence or not is at the discretion of tax inspection, each case must be evaluated with technical rigor to avoid possible requests for information or tax assessments by the Tax Agency.