CAPITAL GAINS FOR AN ALOJAMENTO LOCAL THAT IS ALSO A PRIMARY RESIDENCE

by | Jun 22, 2024 | Alojamento Local, Fiscal, Owners

As we note in this post, when a property in Portugal is designated as the owner’s primary residence, it is possible to reinvest the capital from the sale of this property in a new primary residence and obtain exemption, or partial exemption, from capital gains tax. In the same post, we also explain that when a property is sold while being registered as Alojamento Local, the capital gains tax is applied on 95% of the net gain, instead of the usual 50%, making the tax paid almost double.

So, what happens when, as is perfectly possible, a property registered as Alojamento Local and also registered as the owner’s primary residence is sold? Is it possible to claim any tax exemption, or is the tax levied at the higher rate? Well, Finanças has now officially answered this question and unfortunately it’s not good news.

The Autoridade Tributária e Aduaneira (AT, commonly knows as Finanças), has clarified that when a property is sold that is registered as Alojamento Local, even if it is only part of the property such as when just one room is used for tourist rentals, the tax coefficient levied on the net gain will be the one used for AL properties, i.e. 95%. This is also true if the AL registration is cancelled and the property is sold within the next 3 years (after the 3 year period has passed, the capital gains tax is the normal one).

Finanças made this clear in an answer to two different tax payers who had officially queried the situation. One was the owner of a house in which just the ground floor was being used for Alojamento Local, and the other was the owner of a property where just a room had been registered as AL.

The official, legally binding, note was issued as Informação Vinculativa N.º 25217, and mentions that the ground floor of the first property is registered “for the activity of Alojamento Local, meaning that it is not being used exclusively as the primary residence. (“Estando o rés-do-chão a ser utilizado para atividade de Alojamento Local, verifica-se que o mesmo não estará exclusivamente afeto à sua habitação própria e permanente“)

In both the above situations, the owners had asked Finanças to determine if they could benefit from the regime that allows capital gains generated from the sale of a property to be exempt from taxation when the amount received from the sale is used to purchase a new, primary residence, within the legally defined deadlines. The above note clarifies that this is not possible when any part of the property is registered as Alojamento Local.