Habitual residence requirements for the home reinvestment exemption

The application of the exemption for reinvestment in a primary residence is a mechanism that allows individuals to avoid paying Personal Income Tax (IRPF) on the capital gain derived from the sale of their home, provided the amount is used to acquire a new home. However, the Dirección General de Tributos (DGT) has clarified the time limits for this benefit.

What the DGT has ruled

The ruling analyzes whether it is possible to apply said exemption when the transferred property ceased to be the habitual residence before the required period. The DGT's criteria determine that, to access the benefit, the property must be the habitual residence at the time of sale or have been so during the two years immediately preceding the transfer.

In the case analyzed, since residence in the property had ceased in 2018, the habitual residence requirement demanded by Article 41 bis of the Personal Income Tax Regulation (RIRPF) was not met. The administration clarifies that exceptional circumstances regarding a change of address only allow a home to be considered habitual if the three-year period of continuous residence has not been completed, but they do not extend the two-year period for the sale.

What this means for you

This criterion directly impacts individuals planning to sell a property with the intention of reinvesting the capital in a new residence. If the sold property ceased to be your primary residence more than two years ago, the capital gain generated will be subject to the corresponding taxation in IRPF, without the possibility of applying the reinvestment exemption.

What you should do

It is fundamental to verify the effective residence status of the property before carrying out the transfer. It is recommended to:

• Check that the sold property maintains the status of habitual residence at the time of the transaction.
• Verify that, if it is not the current residence, said status has been maintained during the two years prior to the sale.
• Assess each particular situation, as compliance with time limits is a strict requirement of current regulations.