When someone sells a house for a value higher than the value for which they bought it, they have to pay capital gains to the tax authorities.
In the case of local accommodation, the law says there is no need for a sale. It is enough that the owners decide to withdraw the property from this form of lease so that the tax authorities consider that there was an added value.
The tax authorities consider that, since it is a service provision, people who open this activity are taxed in category B (Business and professional income) in order to fit their activity of Local Accommodation, and the property is in business domain. When being deprived of the local accommodation, it becomes personal domain.
For this reason, when a house is affected to the Local Accommodation, it is necessary to determine the capital gain corresponding to the acquisition value and to the market value at the date of assignment, considering 50% of the value, with IRS being the highest percentage.
Posteriorly, if the house is removed from the Local Accommodation and returned to the personal use of its owner, there is a new assessment of the surplus value, this time taking into account the difference between the market value at the date of placement of the property in LA and the value at the moment of disaffection, now considering 95% of the taxable amount.
There should be no reason to collect capital gains, as there is no place for a sale.
When the category B income law was created, it was not to think of local accommodation, even because it did not exist, but in situations where the entrepreneurs transmitted goods from their personal sphere to their professional activity.
The situation is aggravated by the fact that the possible taxation after the removal of the property from the local accommodation can occur on 95% of the surplus value, whereas in a normal sale situation, only 50% of the surplus value is taxed and in category G .
Example
Let's look at the implications of this question through an example:
A property acquired in 2005, was affected to the activity of Local Accommodation in 2016 and was discontinued / sold in 2018.
In 2016, when the entrepreneur affects the property to the Local Accommodation, it is subject to taxation in Category G (Increases), namely for the calculation of an added value on the value that the property valued between 2005 and 2016.
This capital gain is taxed at 50%, however it is suspended, as it will only be declared in the year in which the property is sold / disposed of.
In 2018, when the entrepreneur removes the property from the Local Accommodation / sells, it is subject to an added value in Category B (Corporate and Professional Income), in the amount of 95% of the value that the property valued between 2016 and 2018.
There is yet another aspect that is unknown to most people.
Knowing that properties acquired before 1989 are exempt of capital gains, in the taxation of Category G, it could be a big mistake to affect this property to the local accommodation. Although the property will still be exempt from the appreciation of Category G (valuation between the acquisition year and the year of assignment of the property), it will be subject in the same to the added value of Category B (valuation between the year of affectation of the property and the year of sale / sale).
In practice, imagine that the real estate that affected the local housing regime in 2016 was assessed by the tax authorities at € 125,000.
After two years, in 2018, she wanted to stay with the house again, bypassing her from the local accommodation.
However, in the meantime, this has been revalued by the finances and now is already worth € 150,000.
The added value of re-owning the property for personal use is € 25,000 and the taxable amount is 95% of that value, € 23,750.
If the house 2 years ago, when it was affecting the Local Accommodation, it was worth € 125,000 and now worth € 150,000, there are € 23,750 which suddenly go to the IRS of a person as if they had won. It is considered money that homeowners have in their pocket when it does not exist.
At the root of this confusion are doubts of a fiscal nature that still linger over local accommodation, especially as regards the income tax regime.
In the State Budget of 2018, the government created a solution to alleviate these situations by determining that there is an exemption from the payment of capital gains if the property is reassigned to the lease, but the problem remains if the owner desisted from having leased .
Government promises to exempt from real estate real estate
Although this issue was not yet part of the State Budget for 2019, the Government requested a legislative authorization that intends to review, during 2019, the regime for the taxation of capital gains on IRS, real estate related to business activities and professionals exercised by the owners in the sense of exempt assets that are related to a professional activity and then return to the private sphere of their owners.
The proposed State Budget (OE) for 2019 which the Government delivered in October 2018 in Parliament contemplates a request for legislative authorization so that capital gains from real estate are taxed only at the time of sale. This will mean an exemption for homeowners who own a property, affect it to a professional or business activity, and then bring the property back to their private sphere.
The objective is to "start to tax the capital gains at the time of the alienation of the good". That is, there will be only place to pay tax when and if the house is sold.
Giving up on local accommodation obligates to pay capital gains
Owners who decide to withdraw their properties from local accommodation may be required to pay tax on 95% of the added value. A situation that pleases no one.
In the first 6 months after the entry into force of the new Local Accommodation (LA) rules, there were about 2000 owners who asked to cancel the exploration. Only since the beginning of 2019 have there been close to 1200 cessations, these numbers being provided by Turismo de Portugal.
The numbers of Turismo de Portugal may even be conservative and not mirror reality. For these values only concern the people who formalized the cessation. There are a lot of people who left the farm, but did not cancel the registration because of the capital gains.
The capital gains from local housing are the biggest headache of homeowners. When a home is affected by AL, its market value is determined. The same thing happens when the farm ends. The owner is then subject to the payment of taxes on 95% of the difference between one value and another. Sometimes, the value may even exceed the amount that was earned from the tourist activity.
Fear of capital gains is leading many owners to cease exploration, taking advantage of the registration of LA for other modalities, such as accommodation for foreign students. Bypassing things, it becomes legal because receipts are passed on as if they were 30 day bookings. As foreign students stay three or four months they do not need the lease receipt.
