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Reduction in IMT Requires Owner to Live in Home for Six Years

19 February 2018

Homebuyers have the right to receive up to six years of reductions to IMT tax payments. However, should that property stop being their permanent residence, the buyer may have to repay the full amount of the exemption to the Portuguese state.

A house was bought in December 2017 and benefited from a reduction to the Municipal Property Transfer Tax (IMT) because the new owner indicated that the would use the property as their primary residence. The buyer quickly questioned the Tax and Customs Authority on how long they would need to maintain the property as their permanent residence to keep the right to the tax break. The answer came just as quickly: the owner would need to reside there for six years. Otherwise, the IMT charges would be retroactively recalculated from the moment of the change of address and the owner would have to reimburse the amount of the tax benefit to the state.

The TA’s reply was dispatched on January 15 and is considered a response to a request for binding information from a taxpayer who, having benefited from the IMT tax reduction, wanted to know what would happen should the property cease to correspond to their tax address. “In order to forestall the expiration of the tax reduction, [the taxpayer] must use the acquired property for its declared purpose for a period of six years from the date of acquisition, except in case of a subsequent sale,” the order of the Deputy Director General of the area of Tax-Patrimony Management stated. The IMT Code allows the application of different rates according to the purpose for which the property is intended. When the property is to be used as the owner’s permanent residence, the tax is only paid if the value of the house (the taxable amount for IMT or what the home’s stated value on the deed, whichever is higher) exceeds 92,407 euros. Based on that value, a progressive scale of tax rates between the 2% and 8% is applied. In practice, this would lead to the owner of a €150,000 apartment to pay a 2% IMT charge between 92,407 euros and 126,403 euros and 5% between 126,403 euros and 150,000 euros. Residential real estate that is not used as the owner’s permanent residence does not benefit from any exemption, paying a 1% charge on the first 92,407 euros. Vacation homes, homes placed on the rental market, and short-term letting all require such a payment.

The reduction granted by the exemption can be significant: returning to our example of the €150,000-home, a permanent resident would pay 1,859.77 euros. In all other cases, the tax charge would amount to 2,783.78 euro, a difference of almost one thousand euros.

Should the property owner stop using the property as their permanent residence before the end of the six-year period, the taxpayer would be obliged to repay the difference. However, the tax benefit is not lost on the home is sold.

Pedro Marinho Falcão emphasised that this type of tax benefit was created to stimulate and protect the purchase of permanent housing. Other tax benefits follow the same reasoning, such as the three-year exemption from IMI granted for buyers of permanent residences, and the exemption from the payment of capital gains on property sales when there exists a subsequent, reinvestment in a new permanent home. “The benefits are conceded to incentivise the acquisition of permanent housing,” the lawyer stressed. Falcão also noted that when conditions change (whether because the taxpayer made false statements or other reasons known to the property owner), “they will have to pay the tax that would have been levied without the benefit of the tax exemption or reduction.”

Original Story: Diário de Notícias – Lucília Tiago

Photo: Pedro Rocha / Global Imagens

Translation: Richard Turner