In a previous post, we documented how the Mais Habitação housing law introduced a change that allows an exemption for capital gains tax (CGT) in certain circumstances when selling a secondary residence. Basically, the proceeds from the sale have to be used to pay off the mortgage for the primary residence of the taxpayer, or their direct relatives.
The Portuguese fiscal authorities have now clarified what happens when the secondary residence is also registered as an Alojamento Local, in a binding note issued on 21st July 2024 (Processo 26246, com despacho de 2024-07-21, do Subdiretor-Geral da Área Gestão Tributária – IR, por delegação)
The note provides analysis of a case where the Alojamento Local registration was cancelled in December 2021, and the property was then rented to traditional, long-term tenants. The owner made a formal query to Finanças to ask if the proceeds from the intended sale of the property could be used to pay off his daughter’s mortgage on her primary residence, thus obtaining exemption from capital gains tax.
In the above mentioned “informação vinculativa” (binding note), Finanças clarifies that, if the sale occurs before December 2024 (in which case, less than 3 years have passed since the AL registration was cancelled), then there is no possibility of an exemption, and capital gains tax will be levied according to Category B IRS rules, in which 95% of the gain is taxed at the taxpayer’s IRS rate.
In this case, if the sale occurs after 3 years have passed, but before 31st December 2024 (in the case in analysis, there is a small period of time for this to take place), then the exemption rules could be applied, such that the taxpayer may invest the gain in his daughter’s mortgage and not pay any capital gains tax.
SUMMARY: In the case of a secondary residence being sold which is also registered as an Alojamento Local (or less than 3 years have passed since the AL registration was cancelled), there is no possibility of obtaining exemption from capital gains tax.