The Government is studying incentives for migrating short-term local lodging to affordable long-term leases. It is not yet known how the Government plans to accomplish this objective. It may become possible to change the fiscal regime that requires the payment of capital gains when the property is no longer assigned to a professional activity and returns to the sphere of the owner.
There may be a variety reasons for you to discontinue an “AL” business: a) you need your place for yourself; b) the property may be up for sale; c) the bureaucracy may be too cumbersome for you; d) competition may have driven down prices and the activity is no longer profitable, e) other. Whatever the motive that you no longer wish to continue to let short-term furnished accommodations to holidaymakers, there are several steps that you will need to take to make the change: Continue reading
The withdrawal of a property from a Local Lodging tourist activity was already potentially subject to capital gains assessment under previous legislation. However, the way the law was drafted left room for doubt as to the exact point that the tax would be due. In the 2018 State Budget, this doubt was clarified, making it unambiguous that there is deferred payment of capital gains tax when the property is further assigned on an ongoing basis to income from category F (long-term rental). Without this abeyance, a Capital Gain may be attained in the year of cessation of the business assignment. Regardless, reporting is done in your annual “IRS” return.
In the past six months, almost 2,000 “AL” enrolments have been wound up. Many owners have stopped letting but failed to cancel their registrations due to capital gains tax liabilities. In the first quarter of 2019, new “AL” sign-ups fell nationally by 40% and by 60% in Lisbon. These numbers are likely to be understated. In total, the capital currently counts with 18,000 Local Lodging Establishments. Nationwide, there are approximately 83,000. 2020 could prove to be a year of mass exodus.
Owners who remove their properties from Local Lodging and make them available for long-term letting can be spared mandatory CGT assessment. This push to long-term letting integrates the government’s package of proposals in the 2018 State Budget. Once confirmed, this measure will be the only Capital Gains Tax refuge once an owner stops an “AL” activity.
Upon approval within the framework of urban renovation, property owners can benefit from the following tax incentives:
- Long-term rental income assessed at 5%;
- “IMI” exemption for 5 years;
- “IMT” exemption for the acquisition of rehabilitated properties;
- 30% tax deduction under “IRS” for costs borne by the owner;
- Capital gains at the rate of 5%.
It is the responsibility of the city council to verify the state of conservation of the property both before and after the restoration. Rehabilitation must maintain building façades, the number of floors above ground as well as any structural elements of heritage value (vaults, archways, metal or wooden structures, etc.)
Despite millions in tax concessions, the overall impact on tax revenues from Non-Habitual Residents has proven to be propitious for Portugal, due to total taxable income generated, such as capital gains, rates, VAT, etc. Simultaneously, there is also a significantly healthy impact on local economies arising from new construction, urban rehabilitation and real estate transactions.
Potential Capital Gains Tax liabilities have caught by surprise many owners engaged in Local Lodging when using privately owned property in a sole trader business activity. As scary as it may sound in theory, the practice is generally far more benign in most cases as we can see in the following illustration. Continue reading