Exemption

Regulations: Articles 38.1 Law IRPF , 41 Regulation IRPF

Capital gains obtained from the transfer of the taxpayer's habitual residence may be exempt, when the total amount obtained from the transfer is reinvested in the acquisition of another habitual residence under the conditions indicated below:

Without prejudice to the foregoing, please note that the exemption from capital gains derived from the transfer of the habitual residence by persons over 65 years of age or by persons in a situation of severe or great dependency is discussed in the section " Exempt capital gains " of this same Chapter.

For these purposes the rehabilitation of the home is considered to be the same as its acquisition, 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.

   Therefore, for the works to be considered rehabilitation, it will be necessary first of all that the majority of the amount of the work is destined to the consolidation or treatment of structural elements of the building (structures, facades, roofs or similar structural elements), without including in said concept the works of readaptation, redistribution, reconditioning and improvement or reform of the home, such as redistribution of interior space, change or modernization of plumbing, heating, electricity, gas, flooring, tiling, carpentry, lowering ceilings, etc.

Likewise, the taxpayer can also obtain the tax benefit of the reinvestment exemption if he allocates the amounts obtained from the sale of the habitual residence to pay the price of a new habitual 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, filed in the administrative appeal no. 4417/2017 ( 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 from the sale of the previous home be applied to the construction of the new home, within the reinvestment period of two years following the sale of the former primary residence.

 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. 

Consequently, the exemption will not apply when the interested party has not proven that the works were completed and delivered to him/her within the four-year period established by regulation, starting from the start of the investment, unless said period has been extended in accordance with the provisions of sections 3 and 4 of article 55 of Regulation Personal Income Tax . 

According to the above, the application of the entire amount received from the sale of the previous home to the construction of the new home can be made within the reinvestment period of two years from the sale of the former primary residence and also in the two years prior to said sale, so payments not made within this period will not be considered reinvested amounts. Likewise, the home must be completed within the time limits established in article 55 of Regulation Personal Income Tax , which will be calculated from the time the first payment is made for the construction of the home that is considered a reinvested amount for the purposes of the exemption for reinvestment in a primary residence.