Sale of real estate and VAT: changes in tax and housing legislation Reduction of the taxable base from 2021 for residential real estate in RussiaSale of real estate and VAT: new tax rules and housing in Russia (2021)

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Many things are changing in real estate and in particular in the residential segment in Portugal. First, with the Mais Habitação program, which was published in the Diário da República on October 6 and entered into force the next day, and then with the measures in the draft State Budget Law for 2024 (OE2024). One of the changes under the government's controversial program has to do with real estate profits. With the help of experts, you will learn all about this topic.

New requirements for reinvesting real estate profits

Two new requirements have been added to the already existing requirements for the sale of a main residence, the so-called real estate profit reinvestment regime for own and permanent homes (the ability to avoid paying income tax on the sale of a permanent home while buying another permanent home):

• Taxpayers must have their (or their family's) residence/registration address in that property for 24 months prior to the date of sale;
• They cannot take advantage of the reinvestment regime in the year of gain or within the previous three years (unless due to exceptional circumstances).

"These two additional requirements are intended to prevent the abuse of the reinvestment regime without actually using the property as a permanent dwelling," PwC's Martim Gomez and Maria Carolina Rodriguez begin to explain in this article for idealista/news. "The calculation of the period for reinvesting the amount of real estate income in the acquisition of own and permanent housing (24 months and 36 months, respectively) is suspended for two years from January 1, 2020," they add.

Profits from the sale of land for construction and secondary housing

The PwC experts also remind that the Mais Habitação program also includes a transitional provision that exempts from taxation profits derived from the sale of construction land or residential real estate that is not intended for the taxpayer's or his family's own and permanent residence (secondary housing), made between January 1, 2022 and December 31, 2024, provided that the value of the sale, deducted from the amortization of a possible loan taken to acquire the property, is applied to the repayment of the mortgage loan debt "This repayment must be made within three months of the sale, and in the case of sales made before the effective date of this law (October 7, 2023), the loan repayment must be made within three months of that date," they explain.

A specific example

If someone sells a holiday apartment or an inherited apartment (which they have not used as a permanent home) for €150,000 and contributes this amount in full to the repayment of a mortgage loan (part of a loan for the purchase of a permanent home, excluding loans for other purposes) on their current home, they will not pay tax on the gain realized on the sale of said holiday apartment or inherited apartment. If the sale price, deducted from the amortization of the eventual loan taken to acquire the property sold, exceeds the outstanding mortgage loan taken to acquire the taxpayer's or his family's permanent home, the remaining amount is subject to taxation under the general rules of the Personal Income Tax Code.

PwC experts warn that the State Tax and Customs Service may require documentation proving repayment of mortgage debt on a permanent home after filing a Model 3 personal income tax return for 2023 and 2024.

Real estate gains for the state

In an article prepared for idealista/news, PwC reports that an exemption from taxation in personal income tax has been established for gains derived from the sale of real estate for the state, autonomous regions and state-owned enterprises in housing or local authorities. The exemption does not apply to persons who are residents in a country, territory or region with a more favorable tax system, so-called tax havens, and to income from bargain sales by exercising the right of preferred purchase. "Income exempted under this measure shall be included in the calculation of the personal income tax rate applicable to the remaining income subject to progressive personal income tax rates," they add.

Revenue from urban redevelopment: how does it work?

Within the urban development construction and renovation regime, income received by Portuguese residents from the first sale after renovation of real estate located in an urban development renovation zone is no longer subject to the 5% personal income tax and is subject to the general personal income tax rules. This means that half of the profits earned are subject to taxation at progressive personal income tax rates, PwC experts explain.