Exemption for reinvestment in primary residence: proportional application

The Directorate General of Taxes (DGT) has issued a relevant ruling for individuals who sell their primary residence with the intention of acquiring a new home. The inquiry focuses on determining whether it is possible to apply the reinvestment exemption proportionally when the acquisition of the new home is not total or is carried out under a specific ownership percentage.

What the DGT has ruled

The body establishes that, for the exemption to proceed, both the transferred property and the acquired property must hold the status of primary residence in accordance with the provisions of the Personal Income Tax Regulation (RIRPF). The ruling confirms that the taxpayer may apply the exemption based on the amount allocated to the new home, provided that said amount is related to their percentage of ownership.

Specifically, the resolution details two scenarios:

• If the person reinvests the entire amount obtained into their corresponding share of the new home, the capital gain will be fully exempt.
• If the reinvestment is less than the amount obtained, only the proportional part allocated to the new residence will be excluded.

What this means for you

This criterion directly affects individuals performing purchase and sale transactions of their primary residences. If you decide to acquire a new home but do not allocate the total funds obtained from the previous sale, or if the new acquisition is held in co-ownership, the exemption will not be automatic for the total gain. The amount of the exemption will depend strictly on the proportion of the funds reinvested in your share of the new property.

What you should do

In an operation of this type, it is necessary to verify that both properties meet the primary residence requirements established in the IRPF Law and its Regulation. It is fundamental to perform a precise calculation of the portion of the gain intended to be excluded, ensuring that the amount allocated to the new home matches the ownership percentage and the amount from the previous sale. It is recommended to assess each particular situation to determine the exact tax impact of the operation.