Onerous transfer of property not used as tax residence – Reinvestment (PIV_27385)
(Alienação onerosa de imóvel no qual não teve domicílio fiscal – Reinvestimento_PIV 27385)
What is Informação Vinculativa (Binding Information)?
Binding Information, refers to an official response issued by tax authorities in Portugal, addressing specific queries from taxpayers regarding the interpretation or application of tax laws in particular situations. These rulings hold legal authority and must be followed by both the taxpayer and the tax authority, provided that the circumstances remain unchanged.
Importance of Binding Information:
Formality: They provide an official and authoritative interpretation of tax legislation.
Obligation: Both the tax authority and the taxpayer must adhere to the ruling, provided the facts presented remain unchanged.
Legal Certainty: Binding rulings offer taxpayers clarity and legal certainty regarding their tax obligations. By outlining how tax laws apply to their specific circumstances, taxpayers can plan and conduct their financial activities with confidence.
Procedure: Taxpayers must formally request binding information by detailing their specific circumstances for accurate analysis.
Facilitating Planning: Provides confidence for taxpayers in planning their financial activities.
Avoiding Disputes: Ensures compliance with tax laws, thereby reducing potential disputes with tax authorities.
Ensuring Fairness: Promotes fairness in tax treatment by providing consistent interpretations of tax laws.
Example Scenario:
Article/Item: Article 10 – Capital Gains
Subject: Onerous transfer of property not used as tax residence – Reinvestment
Content:
The applicant requests Binding Information regarding the requirements to benefit from the exclusion from taxation of gains resulting from the onerous transfer of real estate intended for own and permanent residence, as provided in paragraph 5 of Article 10 of the Personal Income Tax Code (Código do IRS).
Facts:
The applicant acquired, by donation from his grandparents, on xx-07-2022, a property corresponding to urban article xxxx, with the intention of designating it as his own and permanent residence.
However, due to lack of knowledge, he did not update his tax address to this property, keeping it registered at his grandparents’ home, where he had been living until then.
On xx-10-2024, he sold the aforementioned property and, therefore, wishes to know whether he can use the proceeds from the sale to acquire another property to be used as own and permanent residence, thereby excluding the capital gains obtained from taxation. He mentions that, despite not having updated his tax address, he has evidence that he had in fact moved into and was living in the property.
Information:
1. Law no. 56/2023, of October 6 – “Mais Habitação” Program – approved a set of measures in the area of housing, introducing several legislative changes with significant impact on Personal Income Tax (IRS), and came into force on October 7, 2023.
2. One of these changes concerned Article 10 of the Personal Income Tax Code, titled “Capital Gains”, by adding points e) and f) to paragraph 5, and point e) to paragraph 6, thereby imposing stricter conditions for reinvestment.
3. Subsequently, Decree-Law no. 57/2024, of September 10, introduced further amendments, specifically to Article 10 of the IRS Code, revoking point f) and rewording point e) of paragraph 5, which now states the following:
“e) The transferred property must have been used as the taxpayer’s or their household’s own and permanent residence, proven by the corresponding tax address, within the 12 months prior to the date of transfer, or, if earlier, the date of the reinvestment referred to in point a), unless non-compliance with this period is due to exceptional circumstances, as outlined in paragraph 23.”
4. This legal act also added paragraph 23 to Article 10 of the IRS Code, which states:
“23 – For the purposes of point e) of paragraph 5, exceptional circumstances are deemed to include changes in the composition of the household due to marriage or civil union, dissolution of marriage or civil union, or an increase in the number of dependents.”
5. Considering that the applicant sold the property on xx-10-2024, the applicable provision in their case is point e) of paragraph 5 of Article 10 of the IRS Code, as amended by Decree-Law no. 57/2024, of September 10.
6. According to this provision, for the purposes of excluding taxation of gains arising from the onerous transfer of a property intended as own and permanent residence, it is required that the taxpayer has their tax address registered at the property during the 12 months prior to the date of transfer.
7. The rule in paragraph 23, which allows for an exception to the condition set out in point e) of paragraph 5 of Article 10, does not apply in this case, as it is intended for taxpayers who had their tax residence registered at the property but, due to an exceptional circumstance, did not fulfill the 12-month period of residence. It does not apply to taxpayers who never had their own and permanent residence, proven by tax address, at the transferred property.
8. Since the applicant never had their tax residence registered at the property that was sold, the conditions to benefit from the reinvestment regime, provided for in paragraph 5 of Article 10 of the IRS Code, are not met. Therefore, the sale is subject to taxation under the general rules.
Conclusion:
The applicant does not meet the legal requirements to benefit from the exclusion of capital gains taxation under paragraph 5 of Article 10 of the IRS Code. Specifically, the property sold was never registered as the applicant’s tax address, which is a mandatory condition for the application of the reinvestment exemption. Although the applicant claims to have resided in the property, the lack of formal registration as their fiscal domicile within the 12 months prior to the sale prevents eligibility. Furthermore, the exception for “exceptional circumstances” under paragraph 23 does not apply to cases where the taxpayer never established fiscal residence at the property. As such, the gains from the sale are taxable under the general regime.
To read the original Binding Information in Portuguese, click here: Ficha Doutrinária
For further assistance and to ensure full compliance with tax laws, please contact AFM at info@afm.tax