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Practical manual for Income Tax 2022.

Principal Residence item

Regulations: Additional Provision twenty-third Law IRPF and 41 bis Regulation IRPF . See also art. 55.5 Regulation IRPF , in the version in force as of December 31, 2012

For tax purposes, the taxpayer's habitual residence is considered to be building in which the taxpayer resides for a continuous period of at least three years .

In relation to the tax benefits related to the habitual residence, in the cases of acquisition of the property in undivided ownership, having the taxpayer resided uninterruptedly in the home since its acquisition, to calculate the three-year period to determine whether or not the property is considered a habitual residence, the date on which the acquisition of the undivided share occurred must be taken into account, without having significance for these purposes the date on which the remaining share was acquired until completing 100% of the ownership of the common property due to the division of the common property, the dissolution of the community of property, the termination of the matrimonial economic regime of participation or the dissolution of community property or separation of co-owners. (Resolution of the TEAC of September 10, 2015, Claim number 00/06331/2013 , issued in extraordinary appeal for unification of criteria).

In this regard, please note the Supreme Court ruling of 12 December 2022, issued in cassation appeal no. 7219/2020, (ROJ: STS 4569/2022), which establishes as an interpretative criterion that for the application of the exemption for reinvestment for personal income tax purposes, it is not sufficient for the taxpayer to have held bare ownership of the home being transferred for part of a continuous period of at least three years, but rather full ownership is required throughout that time, stating that "The exemption from the capital gain obtained on the occasion of the transfer of the taxpayer's habitual residence, provided that the total amount obtained from the transfer is reinvested in the acquisition of a new habitual residence, regulated in art. 38 of the Personal Income Tax Law, requires that the transferred home has constituted the taxpayer's habitual residence for a continuous period of at least three consecutive years and that the taxpayer has held full ownership of it during said period, without bare ownership being a sufficient title for such purposes".

However, it will be understood that the dwelling had a habitual character when, despite not having elapsed said period, the death of the taxpayer occurs or other circumstances occur that necessarily require the change of domicile, such as marriage, marital separation, job transfer, obtaining the first job or change of job or other similar justified circumstances.

The regulatory expression "circumstances that necessarily require a change of address" implies an obligation to change said address. The term “necessarily” is an adverb that, according to the Dictionary of the Royal Academy, means with or by necessity or precision. In turn, the term “need” can indicate everything that is impossible to escape, lack or resist. Even more enlightening is the noun precision, included in the definition of “necessarily,” since it implies an obligation or indispensable need that forces and requires one to do something. Finally, one of the definitions of “necessary” confirms the above: It is said of something that is done and executed due to something else, as opposed to voluntary and spontaneous.

Consequently, its application requires considering whether, in a given situation, changing domicile is an option for the taxpayer or is beyond his or her will or convenience; That is to say, the fact that one of the listed circumstances or other similar ones occurs is not decisive in itself, nor does it simply constitute an exception to the general requirement of effective residence for three years. In the first case, that is, if the taxpayer retains the possibility of choosing, there will not be a circumstance that allows for an exception to the three-year period and, therefore, if the taxpayer decides to change address, the home will not be considered habitual. Along the same lines, it can be stated that if the concurrence of circumstances similar to those listed in the Twenty-Third Additional Provision of Law IRPF is proven, the three-year period may be excepted, provided that they also require a change of address.

For the acquired dwelling to constitute the habitual residence of the taxpayer, it must be effectively and permanently inhabited by the taxpayer himself, within a period of twelve months , counted from the date of acquisition or completion of the works.

It will be understood that the acquired dwelling does not lose its habitual character when the following circumstances occur:

  • When the taxpayer dies.

  • When other circumstances occur that necessarily prevent the occupation of the dwelling under the terms provided above.

  • When the taxpayer enjoys a habitual residence due to position or employment and the acquired residence is not used, in which case the twelve-month period will begin to count from the date of cessation.

When the dwelling has been effectively and permanently inhabited by the taxpayer within a period of twelve months, counted from the date of acquisition or completion of the works, the three-year period to consider it as the taxpayer's habitual will be computed from this last date

Regarding this requirement of occupying the habitual residence within the twelve months established in article 41 bis of the Personal Income Tax Regulations take into account that it does not constitute an additional requirement for considering the building as a habitual residence but rather it extends the deduction for investment in housing since the taxpayer may apply the deduction even if he or she does not reside in it, provided that he or she occupies it within that period. This deduction, however, will not be consolidated until the residence acquires the status of habitual residence, which, as we have said, will occur when the taxpayer resides there for a continuous period of three years.

For the purposes of the exemption for reinvestment the rehabilitation of the home is assimilated to the acquisition of a home, and works on it that meet any of the following requirements are considered as such:

  1. That these are subsidized actions in the area of housing rehabilitation under the terms provided for in Royal Decree 233/2013, of April 5, which regulates the State Plan for the promotion of housing rental, building rehabilitation, and urban regeneration and renewal, 2013-2016.

  2. Those whose main objective is the reconstruction of the dwelling by consolidating and treating the structures, facades or roofs and other similar works, provided that the overall cost of the rehabilitation operations exceeds 25% of the purchase price if this had been carried out during the two years immediately prior to the start of the rehabilitation works or, otherwise, the market value of the dwelling at the time of said start. For these purposes, the proportional part corresponding to the land will be deducted from the purchase price or market value of the home.

Likewise, the taxpayer can also obtain the tax benefit of the reinvestment exemption if he/she uses the amounts obtained from the sale of his/her primary residence to cover the price of a new primary residence under construction, including the possibility of self-promotion.

In accordance with the doctrine established by the Supreme Court Ruling No. 1098/2020, of July 23, 2020, in the administrative appeal no. 1098/2020 (ROJ: STS 2698/2020) in the case of reinvestment in future construction, two requirements must be met for the reinvestment exemption to apply:

 1) That the entire amount received be applied to the construction of the new home, within the two-year reinvestment period.

 2) That the requirements of article 55 of the IRPF Regulation are met in the version in force on December 31, 2012, in accordance with the eighteenth transitional provision of the IRPF Law and the twelfth transitional provision of the IRPF Regulation . For this purpose, proof must be provided that the works have been completed within a period of four years, unless otherwise provided for in sections 3 and 4 of article 55 of the IRPF Regulations.

Note: For the exclusive purposes of applying the exemption, it will be understood that the taxpayer is transferring his or her habitual residence when it constitutes his or her habitual residence at that time or would have been considered as such until any day of the two years prior to the date of the transfer.