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Altering Residential Licensing May Cost IMT Exemption

1 October 2017

What happens if a residential property ceases to be considered housing and is classified as a service? The reduced IMT rate will cease to apply if the change occurs within six years of the purchase.

Whoever buys a house for housing and decides to change the classification of the property, registering the property as a service as opposed to a residential building with the municipal licensing board, will lose their exemption from the Municipal Tax on Real Estate Transfers (IMT) or will cease to benefit from a reduction in tax rates.

The loss of the tax benefit occurs if the building is no longer used for residential purposes in the six years following the purchase of the property. The rule is outlined in the IMT code and, with the growth of short-term tourist accommodation placing many buildings under the local housing regime, taxpayers have expressed doubts about how households should be classified and the implications this has regarding some taxes.

The questions surrounding the subject prompted two taxpayers into sending a request for binding information, published in the Finance Portal last week, to the Tax and Customs Authority (TA) to query the tax authorities about their specific situation.

The two taxpayers bought a property in 2016 for 90,000 euros for residential purposes. First question: does the entry into the local housing regime entail changing the classification of the residential building into a service building? Second question: does the change “alter the building’s final use”, thus affecting the IMT exemption?

When the taxpayers bought the house, they stated that it was intended for housing and because the property was purchased for 90,000 euros, they were covered by the reduced rate of IMT because the amount paid was lower than the limit of 92,407 euros.

Regarding the classification of the property, the tax authorities referred the matter to the city councils, because “the city’s licensing board is charged with the classification of properties”, and it is up to the municipality to grant authorisation for use. When assessing whether taxpayers are entitled to a reduction in IMT rates (or exemption), authorities should consider “the use made by the purchaser, not just the allocation of the license fee.”

The tax benefit expires “if, in the six-year period after the acquisition, a different destination was given to the real estate than the one which gave rise to it,” clarifies TA, stressing that for that decision, which is to be assumed by the municipality “in the communication provided for in the local accommodation regime decree,” since it will determine the maintenance or modification of the legal allocation of the property.”

Conclusion: if the provision of local accommodation services “implies a change in the licensing of that urban building, within six years from the acquisition of the property, from housing to services,” the taxpayers lose the benefit of the reduction of the IMT, the tax authority concluded.

Local accommodation and AIMI

The question does not apply to IMT alone. Are local tourist accommodations considered housing or services? The issue is controversial among homeowners, as is often the case with questions involving tax payments.

With regards to the Municipal Property Tax Surcharge (AIMI), some property owners tried, without success, to have their buildings considered, for this tax, as providing a service, to avoid payment of the tax. This is because the AIMI does not apply to real estate used for commercial activity or services.

After receiving AIMI tax charges, some owners, in numbers that could not be determined, went to the Finance Ministry to claim that their properties were registered as local tourist accommodations, arguing that the provision of services guaranteed them an exemption. The Ministry, based on the classification of the building as housing, which appears in the land registry, rejected this interpretation. To change the allocation of the property would require a certificate from the municipality, to confirm such change.

Público has found that some municipalities, faced with requests for certificates, are rejecting these claims, demanding compliance with all the steps provided by law to effect the change. In horizontal housing, this process begins with the acceptance, unanimously, of the remaining owners, followed by the presentation of a project to the local authority, to change the allocation of the property.

After acceptance by the local authority, a change in the property registration deed will still be required. It is a time consuming and costly process. In traditional rentals and local tourist accommodations, the value of the AIMI can be withheld for income tax purposes.

Original Story: Público – Rosa Soares / Pedro Crisóstomo

Photo: Paulo Pimenta

Translation: Richard Turner