Each week, Mansion Global poses a tax question to real estate tax lawyers. Here is this week’s question.
Q. Are there any tax savings on the restoration of a historic Portuguese property?
A. Those who undertake to renovate a beachfront villa in Portugal can take advantage of several tax advantages for their efforts, according to Julija Neves, a lawyer at the Lisbon-based law firm Kore Partners.
Around 15 years ago, cities like Lisbon and Porto were plagued by abandoned properties, including empty apartment buildings or the former palaces of wealthy families in Portugal.
âBefore, there was a lot of housing that people didn’t live in and look after,â said Neves.
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To encourage private investment in abandoned properties, the government has created several tax breaks in designated urban regeneration areas, which include parts of Lisbon, Porto and the Algarve coastal region, as well as smaller towns like SetÃºbal. .
Buyers pay no transfer tax when they buy a ruin they plan to renovate in one of these areas, Neves noted. Also known as municipal property transfer tax (IMT), the levy can be as high as 7.5% on a property priced over â¬ 1 million (US $ 1.15 million) , so the savings can be substantial.
Renovations are to begin within two years of acquisition, and the property is exempt from annual taxes for three years while the project is underway, the attorney said. In addition, homeowners are entitled to a reduced VAT rate of 6% on building materials, compared to the general rate of 23%.
Once the restoration is complete and it’s time to sell, there is no LMI on the home’s first sale, Neves said. Again, these savings can be “very significant”. Subsequent sales will be subject to tax.
“Houses over a million euros are quite common here in Lisbon,” she noted.
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