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Practical manual for Income Tax 2023.

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 the purposes of applying this exemption:

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

  • Acquisition of undivided property: calculation of the three-year period.

    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).

  • Full ownership for a continuous period of 3 years.

    The Supreme Court's ruling of December 12, 2022, issued in appeal number 7219/2020, ( RED : STS 4569/2022), 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.

2. In order 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.

However, 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

Occupation within twelve months.

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.

3. For the exclusive purposes of applying the exemption, it will be understood that the taxpayer is transferring his habitual residence when it constitutes his 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.

Compliance with this requirement: case of separated or divorced spouses

Please note the interpretative criteria established by the Supreme Court in its ruling No. 553/2023, of May 5, filed in administrative appeal no. 851/2021 ( ROJ : STS 2021/2023), according to which "in situations of separation, divorce or annulment of marriage that have determined the cessation of effective occupation as a habitual residence for the spouse who has to leave the habitual residence for such reasons, the requirement of effective occupation of the habitual residence at the time of the transfer or on any day of the two years prior to it, required by section 3 of art. 41 bis of the IRPF Regulation , will be deemed to be fulfilled when such situation occurs in the spouse who remained there". Therefore, the exclusive effects of the application of the exemptions provided for in articles 33.4. b) and 38 of the Personal Income Tax Law , it will be understood that the taxpayer who had to abandon the family home due to the attribution of its use to the other spouse, is transferring the habitual home when, for the spouse who remained in it, it constitutes his or her habitual home at that time or would have been considered as such until any day of the two years prior to the date of transfer.