Legal alert no. 20
Undivided Estate and the Supplementary Tax on Property Share Allocation on March 2017
The 2017 Portuguese State Budget Law (Law no. 42/2016), published in the Official Gazette of the Republic of Portugal on 28th December, established a supplementary real estate tax to be paid in addition to the Municipality Tax on Property.
Undivided estates – estate that was accepted by the heirs, but it was not yet distributed – are treated as natural persons, therefore are subject to the supplementary tax on property when the Taxable Patrimonial Evaluation of all the properties they own exceeds 600.000,00 €. The applicable rate is set at 0,7% for the Taxable Patrimonial Evaluation exceeding 600.000,00 €
It should be noted that the payment of the supplementary tax on property can be avoided, taking into account that it is possible to allocate the share corresponding to each heir for tax purposes, keeping the estate undivided.
The allocation of shares of the undivided estate for tax purposes is made through the Tax Authorities Website, as follows: the administrator of estate must identify the heirs and their shares during the month of March of 2017 and, afterwards, each heir shall confirm their own share of the undivided estate (during the month of April).
However, it must be highlighted that if as a result of this allocation, the Taxable Patrimonial Evaluation of each heir surpasses the amount referred above, it will be subject to the payment of the supplementary tax on property. Furthermore, although the rate of the supplementary tax on property regarding undivided estate is always set at 0,7%, for natural persons with a real estate superior to one million euros the applicable rate rises to 1%.
Therefore, benefits will have to be assessed case-by-case.
The allocation procedure maintains the estate undivided, therefore, even if there is a disagreement between the heirs regarding the value of each item of the estate, it is possible to do it.
To access the complete text of the 2017 Portuguese State Budget Law please go to - https://dre.pt/application/conteudo/105637672