Alojamento Local

Share experience regarding ownership of property and/or living in Portugal.

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Geoff
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Re: Alojamento Local

Post by Geoff » Thu Dec 13, 2018 5:45 pm

Problem though Widge is in the Sovereign briefing note which says :

"Long term rental income versus Short term touristic lettings

Another issue that it is interesting to bring to light is the difference between what can be considered a long
term rental and a touristic business (short term).
Many AL property owners use local agencies or resorts to rent out and develop all the touristic activity and
receive a rent according to an agreement between the resort and themselves.
Despite being registered with a business activity and being the holder of their own property AL, if all the
rental invoices are issued to the same entity (resort) the Tax Authority might consider this income as Long
Term letting rather than short term.

The consequences in terms of taxation are huge:
Under the simplified regime the Income for touristic lettings is 35% taxable at a rate of 25%; the long terms
rental income under the simplified regime is 95% taxable at 25%.
Let’s not forget that the tax payer is already registered under a business activity and continues to comply
with all the tax obligations regardless of the final taxation.
To mitigate this eventual assumption, we can only suggest that the AL owners also rent to private guests to
be able to avoid issuing the total of the letting invoices to one and the same company (the resort)."

Which seems to mean that rental income comes from one source ie a management company, then it could be considered long term, even if the management company have let it to many different rentees!

widge
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Re: Alojamento Local

Post by widge » Fri Dec 14, 2018 9:28 am

If all the rental invoices are issued to the same entity (resort) the Tax Authority might consider this income as Long
Term letting rather than short term.
I can't imagine circumstances whereby your managing agent or resort owner wouldn't agree to invoice the guest ? Especially if you (the customer) would suffer financially if they refuse?

Geoff
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Re: Alojamento Local

Post by Geoff » Fri Dec 14, 2018 9:51 am

A friend of mine comments ;

" Just been speaking to Sovereign about some other stuff, but mentioned the AL Changes
Their opinion is that the tax guys are likely to consider my rental income in 2018 as all long term due to it all coming via CC. The way they say it can be worked around is if one or two invoices are created for Private Rentals (Not through CC)".

Sheila
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Re: Alojamento Local

Post by Sheila » Tue Jan 01, 2019 5:32 pm

Having entered all my invoices on the Financas web site will they just bill me for 8.75% tax of the total or is there something else i have to do?

If it's done automatically where do i go on the web site to find my bill and pay it?

Thanks for any help in advance.

Geoff
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Re: Alojamento Local

Post by Geoff » Wed Mar 06, 2019 1:54 pm

Just found out about another hidden ( to me , anyway) problem with AL.....when set up, the Portuguese taxman considers it as a transfer to a business....so when you cease the AL, capital gains tax is payable for the time you had the AL licence!

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Re: Alojamento Local

Post by RichardHenshall » Wed Mar 06, 2019 2:49 pm

If it's a second home and there's a profit there will be gains tax anyway, though not normally until it is sold. It's not clear to me what rate of tax is charged for this particular circumstance - anyone?

Geoff
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Re: Alojamento Local

Post by Geoff » Wed Mar 06, 2019 4:28 pm

To quote from Sovereign:

"Regarding the Capital Gains, according the current law each property used for AL rental business must be transferred to the business activity.

And this transaction will originate a Capital Gain, however this capital gain tax liability will be frozen until the property is actually sold or the rental business is cancelled, even without selling, in which case it is assumed to be transferred back to private ownership.

In your case the transfer price is the ratable value (VPT) when the property was transferred to the business and this value was declared in the first tax return submitted as a business. After deducting the minimum wear and tear of 2% a year, the profit is 95% taxed at a rate of 25%."

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Re: Alojamento Local

Post by RichardHenshall » Wed Mar 06, 2019 4:48 pm

Aside from the capital gain being based on the (likely) increase in the VPT, rather than real capital growth, the cost to a non-resident or second home owner would appear to be slightly less than normal gains tax rates, so not a disaster?

Geoff
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Re: Alojamento Local

Post by Geoff » Wed Mar 06, 2019 4:59 pm

No, not a disaster, but annoying that it was never made clear when signing up for AL, and a bit surprised that it's due upon ceasing AL rather than when property sold.
I assume it can't be offset against UK income tax, but hopefully can be carried forward to mitigate any UK CGT , realisable on eventual sale...Brexit permitting!

Geoff
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Re: Alojamento Local

Post by Geoff » Thu Mar 07, 2019 3:52 pm

Just re-read the Sovereign brief....the full text is:

"There will be two separate Capital Gains to be calculated

One based on the difference between the initial acquisition price and the market value or rateable value before the property is transferred to the business.

The transfer value accepted by the Tax Authority is the Rateable Value (Valor Patrimonial) for tax purposes. A different market value would require an evaluation of the property made by an external agency properly licenced such as a Real Estate Agency.

The other Capital Gain, is calculated according to the business activity rules and it is based on the difference between the sale / the transfer back to private, less expenses with sale (such as the real estate commissions) and the transfer to business value deducted by the minimum wear and tear rate.

Under the business rules only 95% of the gain is taxable at a rate of 25% for non-resident tax payers.

The 2019 Government’s budget refers that there will be a possibility of the revision of the law to avoid the Capital Gain, however we cannot guarantee when this will be revised."

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