Taxpayers cannot apply the reinvestment exemption if the sold property was not their primary residence

The application of the reinvestment exemption for 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 a property, provided the amount is used to acquire a new residence. However, compliance with habituality requirements is strict and decisive for its eligibility.

What the DGT has ruled

Through the resolution of a binding ruling, the Dirección General de Tributos (DGT) has specified the scope of Article 38.1 of the Personal Income Tax Law (LIRPF). The administrative body establishes that, to benefit from this exemption, the property being transferred must be the taxpayer's primary residence at the time of sale or must have been so during the two years immediately preceding the transfer.

In the case analyzed, the taxpayer intended to apply the exemption after selling a property in which they had ceased to reside in 2014. The DGT has ruled that, since the status of primary residence was not maintained during the two-year period required by the regulations, the necessary requirements to apply the reinvestment tax benefit are not met.

What this means for you

If you are an individual planning to sell a property to buy another, you must precisely verify your residency history. It is not enough for the sold property to be your residence at the time of signing the deed; the regulations require continuity of habituality over time.

If the sold property was a second home, a rental property, or a home where you ceased to reside more than two years ago, the capital gain derived from the sale will be fully taxed under IRPF, without the possibility of applying the reinvestment exemption, even if you use all the money to buy a new primary residence.

What you should do

Before carrying out the purchase and sale operation, it is necessary to check whether the requirements of Law 35/2006 and the Personal Income Tax Regulations are met. It is essential to document the status of primary residence through census certificates (empadronamiento) or utility bills that prove effective residence in the two years prior to the transfer to avoid contingencies with the Tax Administration.