Exemption for reinvestment in a main residence in a European Union country

The exemption for reinvestment in a main residence in the EU allows the capital gain from the sale of a main residence in Spain to be exempt from tax, provided the proceeds are reinvested in another main residence located in the EU or the EEA and the requirements regarding deadline, habitual residence and documentary evidence are met. It is essential to determine your tax residency in the year of the sale, as this determines whether IRPF or IRNR applies.

Selling a property in Spain typically generates a capital gain which, as a general rule, is subject to tax under the savings base of the IRPF, or under the IRNR if the taxpayer is already a non-resident. However, when the transaction is linked to a change of residence to a country in the EU or the EEA, Spanish legislation permits the exemption to be maintained provided the new residence meets the habituality requirements and the reinvestment deadlines are observed.

At Martínez-Cardós Abogados, a Madrid law firm specialising in advice for non-residents (tax, inheritance and corporate law), inheritance and tax law, we often see three critical points when clients relocate to France, Germany, Italy, Portugal or the Netherlands: correctly establishing the date of transfer, documenting the reinvestment abroad, and coordinating state taxation (IRPF/IRNR) with the municipal capital gains tax and with the tax regime in the new State of residence.

The exemption for reinvestment in a main residence in the EU is based on Article 38 of the Personal Income Tax Act (Ley del IRPF), Articles 41 and 41 bis of the Personal Income Tax Regulations (Reglamento del IRPF), and the Seventh Additional Provision of the Non-Resident Income Tax Act (Ley del IRNR), which extends the benefit to residents of other EU or EEA States. In order to apply the exemption, the property transferred must constitute the taxpayer’s main residence, and the reinvestment must be made within a maximum period of two years.

The essential statutory provisions are:

• Article 38 of Act 35/2006, the Personal Income Tax Act (IRPF): declares exempt the capital gains arising from the transfer of a main residence when the proceeds are reinvested in another main residence, in accordance with the regulatory provisions.
• Articles 41 and 41 bis of the Personal Income Tax Regulations (Reglamento del IRPF): define the concept of main residence, the circumstances under which that status is lost, and the detailed regime governing reinvestment.
• Seventh Additional Provision of the Non-Resident Income Tax Act (Ley del IRNR): allows the exclusion from taxation of the capital gain obtained by a taxpayer resident in a Member State of the EU or of the EEA with information exchange from the transfer of what has been their main residence in Spain, provided the total proceeds are reinvested in another main residence.

The tax authorities set out these criteria in the IRPF Practical Guide and in the binding rulings (consultas vinculantes) of the Directorate-General for Taxation (Dirección General de Tributos). As regards case law, the Court of Justice of the European Union has held that limiting reinvestment relief on a home to properties located in the same State breaches the free movement of persons, in its judgments of 26 October 2006 (Commission v Portugal, C-345/05) and 18 January 2007 (Commission v Sweden, C-104/06).

The main residence reinvestment exemption requires that the property sold constitutes the taxpayer’s main residence, that the proceeds from the transfer are reinvested in another main residence, that the reinvestment takes place within a period not exceeding two years, and that the transaction is correctly reported under IRPF or IRNR. Failure to comply with any of these requirements results in the loss of the exemption and the regularisation of the capital gain.

Main requirements for residents and EU/EEA non-residents

• The property transferred must have the status of the taxpayer’s main residence, which requires uninterrupted residence for at least three years, subject to justified exceptions. It keeps that status if it is sold within two years of ceasing to be the main residence, which is decisive for anyone who has already moved abroad.
• The proceeds obtained must be reinvested in the acquisition, construction, or rehabilitation of another property that is to constitute the taxpayer’s new principal residence.
• The reinvestment may be made in a single payment or in instalments, within the two years following the sale. Proceeds used to pay for a new main residence bought in the two years before the sale also count.
• The exemption is applied proportionally when only part of the proceeds from the transfer is reinvested.

In this context, a change of residence to an EU country does not, in itself, preclude the application of the exemption, provided it can be demonstrated that the new property located in the destination State meets the habituality requirements and that the taxpayer is a tax resident in an EU/EEA country with effective information exchange when availing of the regime under the Non-Resident Income Tax Act.

When the taxpayer remains a tax resident in Spain in the year of the sale, the exemption for reinvestment in a main residence in the EU applies in full within the framework of the IRPF, without the need to file Form 210, and the location of the new property in the EU/EEA does not constitute an obstacle if habituality is duly evidenced. In this case, the transfer and reinvestment are reported in the annual IRPF return.

Pursuant to Article 38 of the Personal Income Tax Act and administrative doctrine, the exemption is not limited to properties located in Spanish territory, provided they constitute the taxpayer’s main residence. The DGT has confirmed this in binding rulings such as V1855-16 of 27 April 2016, concerning a couple moving to France, and V1207-26 of 22 May 2026, which notes that the Regulations do not require the new home to be located in Spain.

In our professional practice, the key points in these cases are:

• Correctly establishing the dates of transfer and acquisition so as not to exceed the two-year period.
• Documenting, by means of deeds, certificates of registration (empadronamiento), and proof of payment, that the new property in the EU genuinely constitutes the main residence.
• Coordinating the IRPF exemption with the tax regime in the destination State in order to avoid double taxation or the loss of benefits due to lack of planning.

For non-resident taxpayers who are tax residents in a State of the European Union or of the European Economic Area with information exchange, the exemption for reinvestment in a main residence in the EU applies within the framework of the IRNR, by reporting the capital gain via Form 210. The exemption allows the capital gain to be excluded from taxation provided the total proceeds are reinvested in a new main residence, meeting the requirements of deadline and habituality.

The Seventh Additional Provision of the Non-Resident Income Tax Act (Ley del IRNR), in force since 1 January 2015, establishes that taxpayers resident in the EU or in the EEA with information exchange may exclude from taxation the capital gain obtained from the transfer of what has been their main residence in Spain, provided the total proceeds are reinvested in the acquisition of a new main residence.

This rule is applied through Form 210 (Modelo 210), which must be filed within three months after one month has elapsed from the sale. Reinvesting does not prevent the withholding: the buyer must withhold 3% of the price and pay it in with Form 211 (Modelo 211). If the new home is bought after Form 210 has been filed, the refund is claimed within three months of that purchase.

In parallel, the municipal capital gains tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana) is levied in the majority of sales of urban properties and is administered by the relevant local authority. Although the reinvestment exemption has effects on the capital gain for IRPF or IRNR purposes, it does not automatically entail exemption from the municipal capital gains tax, which is governed by local regulations and any applicable specific benefits (for example, situations of non-subjection or municipal relief, bonificaciones).

Correctly applying the exemption for reinvestment in a main residence in the EU requires following a clear sequence of steps: identifying tax residency, verifying the habituality of the property transferred, planning the reinvestment within the prescribed period, retaining documentation, and correctly completing the tax return and, where applicable, the municipal capital gains tax filing. Lack of planning frequently results in the loss of the exemption or future regularisations.

Steps for a tax resident in Spain (IRPF)

1. Determine tax residency in the year of the sale, applying the criteria set out in Article 9 of the Personal Income Tax Act (days of presence, centre of economic interests, etc.).
2. Verify that the property sold constitutes the main residence, in accordance with Article 41 bis of the Personal Income Tax Regulations (uninterrupted occupation for at least three years).
3. Calculate the capital gain in accordance with the general rules on taxation of property sales in Spain (transfer value less acquisition value, inherent expenses and taxes).
4. Plan the reinvestment in a new main residence located in Spain or in another EU/EEA Member State, ensuring that it takes place within two years before or after the date of transfer.
5. Document the transaction: deeds of sale and purchase, proof of payment, certificates of registration (empadronamiento), mortgage loan agreements, etc.
6. Report the transaction in the IRPF return, selecting the option for exemption by reinvestment in a main residence and entering the data required in the capital gains section of the annual return form.

Steps for an EU/EEA non-resident (IRNR – Form 210)

1. Confirm that you are a tax resident in an EU or EEA State with effective tax information exchange.
2. Verify that the property sold in Spain was your main residence, as required by domestic legislation.
3. Calculate the capital gain and file Form 210 within the applicable deadline, requesting the application of the reinvestment exemption where appropriate.
4. Reinvest the proceeds obtained in the acquisition of a new main residence within the two-year period, and retain the supporting documentation.
5. Coordinate the obligation to pay and/or settle the municipal capital gains tax with the competent local authority, reviewing any applicable local benefits.

If the tax authorities later review the transaction, they will focus on the facts (residence, deadlines and amounts), how they fit the rules and the documents that prove them. With a well-prepared file, the exemption can be defended in the audit itself or, if necessary, before the economic-administrative tribunals (reclamación económico-administrativa).

The exemption for reinvestment in a main residence in the EU is a key tool for those who sell their main residence in Spain and relocate to another EU/EEA State, but its correct application requires careful planning of deadlines, amounts, tax residency, and municipal capital gains tax.

If you are considering a change of residence to an EU country, or you are already a non-resident and are about to sell your main residence in Spain, it is strongly advisable to obtain specialised tax advice before signing the sale and purchase agreement, in order to plan the reinvestment, document it correctly, reduce risks, and maximise the benefit of the exemption.

Through Velora Realty, the firm’s real estate branch, you can entrust us with the full management of buying or selling a flat in Spain, including drafting and reviewing the contracts.

For those leaving Spain, we also offer a comprehensive service for change of tax residence abroad, covering the preparation of your departure together with the sale of the property and the subsequent filing of the applicable tax returns, so you can leave Spain knowing the sale has been properly handled.

At Martínez-Cardós Abogados we review your transaction before you sign: tax residency, reinvestment deadlines, Form 210, the 3% withholding and the municipal capital gains tax, and we can also handle the sale or purchase itself. Contact our firm to discuss your case.

What is the deadline for reinvestment if I sell my main residence in Spain and purchase another in the EU?

The deadline for the exemption for reinvestment in a main residence in the EU is two years from the date of the sale, and a home bought in the two years before the sale also counts. The reinvestment may be made in a single payment or in instalments within that period, and the exemption applies proportionally if only part of the proceeds is reinvested.

Can I apply the exemption if I am already a non-resident when I sell and I live in an EU country?

Yes, provided you are a tax resident in a State of the EU or the EEA with effective information exchange and the property sold in Spain was your main residence, you may avail of the exemption under the IRNR, reporting the transaction via Form 210 and reinvesting the total proceeds in another main residence. If you no longer live in it, the sale must take place within two years of the date it ceased to be your main residence.

Does the new property necessarily have to be located in Spain?

No. The provisions of the IRPF Act and the IRNR Act, interpreted consistently with EU law, allow the reinvestment to materialise in a main residence located in another EU or EEA Member State, provided the requirements of habituality and deadline are met and can be evidenced by documentary means.

What happens if I only reinvest part of the proceeds from the sale?

In that case, the exemption for reinvestment in a main residence applies proportionally: the portion of the capital gain corresponding to the amount reinvested is exempt from tax, while the remainder of the capital gain is subject to IRPF or IRNR, as applicable. It is therefore essential to plan the amount to be reinvested in order to maximise the exemption.

Does the reinvestment exemption also cover the municipal capital gains tax (plusvalía municipal)?

No. The reinvestment exemption only affects the capital gain for IRPF or IRNR purposes, while the municipal capital gains tax (Impuesto sobre el Incremento de Valor de los Terrenos de Naturaleza Urbana) is governed by the regulations of each local authority. Some municipalities may provide for situations of non-subjection or relief (bonificaciones), but these must be analysed on a case-by-case basis, by consulting the local tax ordinance in force at the time of the transfer.

What is the risk if I do not report, or incorrectly report, the reinvestment exemption?

If the exemption for reinvestment in a main residence is not correctly reported, the tax authorities may regularise the situation, demanding payment of the outstanding tax liability plus late payment interest and, where applicable, penalties for tax infringement. Correctly completing the return and retaining the relevant documentation are essential to avoiding tax contingencies.

Article written by Mario Martínez-Cardós Bada, Spanish lawyer specializing in tax and inheritance law.