Portugal: Extra Taxes for Holiday Rental Property Owners

Property owners in Portugal face increased Municipal Tax on Onerous Property Transfers for turning homes into holiday rentals.

Owners who decide to convert their residential properties into Local Accommodation (AL) within six years of purchase will now face increased Municipal Tax on Onerous Property Transfers (IMT), as per information from the Tax Authority reported by ECO. Initially, these taxpayers benefited from a lower IMT rate at the time of acquisition, as the property was designated solely for residential purposes. However, if the property is repurposed for Local Accommodation activities within the following six years, this tax incentive will be revoked, resulting in a higher tax rate. Consequently, the taxpayer must rectify the IMT settlement by paying the outstanding tax amount that was not initially charged.

While this issue is not new and has been addressed in previous years by tax services, it resurfaced when a taxpayer who purchased a property on August 12, 2021 sought clarification. The individual inquired whether converting part of the acquired property into Local Accommodation, specifically accommodation establishments such as hostels, within six years of purchase would lead to the loss of the reduced IMT rates initially enjoyed. In response, the Tax Authority emphasized that the benefits of exemption and fee reduction under article 17 of the IMT Code are contingent on the property's use by the acquirer, rather than the licensing impact alone.

For instance, if a family purchases a property exclusively for residential purposes, they are subject to IMT rates starting at 1% for properties valued up to 101,917 euros. Conversely, if the same property is acquired for Local Accommodation purposes, the taxation rate increases to 6.5%. The Tax Authority clarified that any exemption or fee reduction benefits will expire if the property's designated use changes within six years of acquisition. As an illustration, if a property was purchased for 100,000 euros with an IMT payment of 1,000 euros (1% rate), converting it into Local Accommodation would incur an additional 5,500 euros in IMT (6.5% rate).

Owners who transition their properties to Local Accommodation within six years of purchase will face higher IMT rates, necessitating the payment of the differential tax amount. It is essential for taxpayers to be aware of these implications and comply with the tax regulations to avoid any penalties or legal consequences.