(
(
Portuguese Tax Authority forced to Recalculate Capital Gains Tax on some Property Sales
There is rarely good news in relation to capital gains tax, but for once a decision has been made to the advantage of the taxpayer.
The Portuguese Tax and Customs Authority (AT) is being forced to recalculate Capital gains tax for some taxpayers. This comes after a Constitutional Court decision declared the AT’s method for calculating capital gains on house sales unconstitutional. For those that have been affected by the past refusal of the tax authority to reconsider the calculation this is welcome news.
In most cases capital gains are determined by the difference between a property’s purchase price and its sale price, (with some allowances for expenses related to the property). However, the IRS Code allows for an alternative: if the rateable value (VPT) is higher than the purchase price, that higher valuation can be used instead. Effectively this means that a theoretical value is used to calculate the capital gains, as opposed to actual values. This was unjust, as in many cases the VPT was incorrectly high, which was no fault of the property owner.
The issue? The Constitutional Court found that the AT failed to adhere to the principle of “contributive capacity” for several years when applying this rule. This principle essentially means that taxes should be levied based on a taxpayer’s actual ability to pay. By using an inflated IMT valuation in certain cases, the AT was effectively overtaxing individuals.
What Does This Mean for You?
If you sold a property and your capital gains were calculated using the IMT valuation instead of the actual sale price, and this resulted in a higher tax burden, you may be eligible for a recalculation and a refund.
This ruling is significant for Portuguese taxpayers and highlights the importance of fair tax assessment, as opposed to theoretical values used to maximise the amount of capital gains tax paid.