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Legal alert no. 76

Expiration of the reduction of the Municipal Tax on Real Estate Transactions’ rate applicable to the acquisition of properties exclusively intended for use as personal and permanent residence

The acquisition of urban buildings exclusively intended for use as personal and permanent residence of the taxpayer benefits from a reduction of applicable rate of the Municipal Tax on Real Estate Transactions (cfr. article 17, no. 1, paragraph a) of the Municipal Tax on Real Estate Transactions Code). However, this reduction of the tax rate expires if, within the six year following the acquisition of the property, it is used for a different purpose than the one that gave rise to that benefit (i.e. personal and permanent residence), except when it is sold (cfr. article 11, no. 7, paragraph a) of the Municipal Tax on Real Estate Transactions Code).

Recently, the Tax Authority brought about the expiration of the reduction of the Municipal Tax on Real Estate Transactions’ rate in the binding information no. 14397, issued on the process no. 2018001374 on the 12th of November 2018 (to access the complete text of binding information no. 14397 please go to http://info.portaldasfinancas.gov.pt/pt/informacao_fiscal/informacoes_vinculativas/patrimonio/Pages/default.aspx).

The Tax Authority explained that the celebration of a lease agreement of the all of part of the property acquired for use as personal and permanent resident entails the immediate revocation of the reduction of the Municipal Tax on Real Estate Transactions’ rate that was applied in the acquisition of the property, since it is no longer exclusively used as personal and permanent residence. In such cases, it will be made a correction in the Municipal Tax on Real Estate Transactions that was paid and it will be applied the rate set forth in the article 17, no. 1, paragraph b) of the Municipal Tax on Real Estate Transactions Code.

The Tax Authority also explained that running an establishment of accommodation in all or part of a property acquired for use as personal and permanent residence also implies the revocation of the reduction of the Municipal Tax on Real Estate Transactions’ rate that was applied in the acquisition of the property, since it is no longer exclusively used for the purpose that justified that reduction. In such cases, it will be made a correction in the Municipal Tax on Real Estate Transaction that was paid and it will be applied the rate set forth in paragraph b) or d) of the no. 1 of article 17, depending on whether, as a result of the allocation of all or part of the property to an establishment of accommodation, the legal allocation of the property stays the same of is altered, respectively.

In both cases analyzed by the Tax Authority, whenever the taxpayer uses the property for a purpose other than the one that gave rise to the reduction of the tax rate (i.e. personal and permanent residence), the taxpayer has to request, within 30 days, the respective tax settlement, which corresponds to the benefit obtained as a result of the reduction of the tax rate (cfr. article 34 of the Municipal Tax on Real Estate Transactions Code).

 

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