The Tax and Customs Authority (AT) has clarified details concerning a tax exemption rule in a recent binding information released on the Finance Portal. This clarification came in response to a taxpayer inquiry about eligibility for a transitional rule exemption on capital gains when selling a property that is not one’s primary residence.
The special legislation, established in October 2023, exempts capital gains from IRS if the gained amount is used to repay, fully or partially, the “outstanding capital” of a loan taken for the purchase of another property, which must be the primary residence of the taxpayer, their family unit, or their children.
To qualify, the bank repayment must occur “within three months from the date” the capital gain is realized.
However, the AT has clarified that a taxpayer cannot benefit from this rule if the loan for the primary residence was contracted after the Mais Habitação law came into effect, which was published in the Diário da República on October 6, 2023, and took effect the following day.
Exemption is only applicable if the repaid loan pre-existed the law’s commencement. “The regime is only applicable to credits existing at the date the law began its existence,” the AT specifies.
This conclusion was reached by analyzing the “literal element,” “teleological element,” and “historical element” of the Mais Habitação norm.
Initially, it was emphasized that the term “capital repayment” refers to a “debt that must exist at the time the gains from construction land or non-primary residence properties are realized.”
“The intent of the legislator should be viewed as assisting compliance with credits existing at the law’s enactment date, rather than encouraging the contracting of new loans,” explains the AT.
Examining the “teleological and historical elements” of the Mais Habitação law, the AT considered the circumstances under which the legislation was devised by the Government of António Costa.
“Due to the persistent and significant increase in mortgage loan installments, caused by rising interest rates, many families faced default risks, thus the legislator’s intention to create measures to mitigate effects on struggling families,” the AT services justify in response to the taxpayer.
This taxpayer also wanted to know if they could be exempt from IRS if they used the gains to pay off their housing loan in Luxembourg, where they reside and work. The tax authority’s response was negative, as the measure is limited “to cases” where the property and loan are based “in Portuguese territory.”
“This law’s political purpose was to address existing challenges in the Portuguese housing market, concerning solely the distortions there, the impact on families with their primary residence in Portuguese territory, and seeking solutions to mitigate related issues,” reads the same binding information.
The AT has published four binding information pieces, reiterating that the property must be located in Portugal.
