Limits on the exemption for reinvestment in primary residence

The application of the exemption for reinvestment in the primary residence is a mechanism that allows individuals to avoid the impact of Personal Income Tax (IRPF) after selling their residence. However, the Dirección General de Tributos (DGT) has specified the temporal and usage limits that must be met to access this tax benefit.

What the DGT has resolved

The inquiry focuses on the possibility of applying the exemption provided for in Article 38 of the IRPF Law. The DGT's criteria determine that, for the transfer of a property to entitle one to the exemption, the dwelling must be the habitual residence at the time of sale or must have been so during the two years immediately preceding the transfer.

Although the regulations provide that a job transfer may allow a residence of less than three years to be considered a habitual residence, this assumption is not applicable if the taxpayer has ceased to reside in it prior to the two-year period preceding the sale. In the case analyzed, since residence in the property ceased in 2020 and the sale was carried out in 2024, the requirement of habitual residence required by the regulations is not met.

What it means for you

If you are an individual planning to sell a property and intend to use the sale proceeds to acquire another home in order to avoid taxation, you must rigorously verify your residence history. It is not enough to have lived in the property at some point; the key lies in the temporal proximity between the cessation of habitual residence and the date of the transfer.

If the sold property ceased to be your habitual residence more than two years ago, the Administration will consider that the requirements of Law 35/2006 and RD 439/2007 are not met, which will require the payment of the corresponding tax on the capital gain.

What you should do

Before formalizing any sale operation with the intention of reinvesting, it is necessary to:

• Check the exact dates of habitual residence in the property to be transferred.
• Verify if the cessation of residence occurred within the two-year margin prior to the sale.
• Evaluate the residence situation in case there are job transfers involved.
• Assess each particular situation with a professional to determine the viability of the exemption.