Tommohawk

Hi all - first post so please bear with me.
I'm UK citizen (although I'm applying for Portuguese citizenship and should get my citizen card tomorrow). My mother was Portuguese - she died 2 years ago. Following her death we (myself and 3 brothers) inherited a small apartment type house in Horta, Fayal, Azores. We were all visiting Horta for a family wedding last year, and saw the notary and completed (we think!) the relevant paperwork. TBH her English isnt great, and our spoken Portuguese is poor, and to complicate things we were variously out of action during our visit as we all contracted COVID in turn. It was a bit of a nightmare.
Anyhow, although we would have loved to retain the property we decided to sell for various reasons and have received an offer (140k) which is progressing. The estate agent has advised us we'll need to pay CGT - I'm familiar with the recent changes to CGT, but an issue has arisen regarding the Acquisition Value which is used to calculate the sum on which CGT is due. Currently the Caderneta Predial (not sure what this actually is) is in my mothers name, and shows a value of approx 26k - the agent has said thats the value that would be used as the Acquisition Value. This would result in a huge CGT bill. My understanding is that this value should have been updated at the time we inherited, but I have no idea of the process involved. I dont know if the Notary registered the property in our names, or is so what value was used. I have some paperwork which looks like it relates to this but theres no place to amend the valuation.
The whole thing has become incredibly complicated and I'm having sleepless night and generally at my wits end.
If anyone could contribute something I'd be ever so grateful!! Happy to provide further info if it helps. Thanks in advance.

macliam

AFAIK, you are indeed liable to CGT on the sale of an inherited property. As I believe the rate is 28% of the taxable gain, it's in your interests to make this gain seem as little as possible. Therefore, I would invest in advice from a specialist, rather than seeking advice from an Expat forum, to ensure this is the case.

The problem is that many recorded values were minimised to "save" on immediate taxation - particularly in the case of inheritance - but this merely stores up greater problems for later. Firstly, you must discover what the "acquisition value" was when the property was registered in your name.... and after this, I believe that only acceptable bills with reference to the property would reduce the capital gain, if the property is later sold at a higher price. However, I have no expertise in this complex area - and you will need someone who knows the legalities, but is not just a bureaucrat and will work to minimise your exposure.

Tommohawk

Hi and thanks for that. I've managed to find some more detailed sums for how the value might be affected by works done, and I understand the point about how historically there was a practice of undervaluing to minimise Stamp Duty. I also agree I will need some kind of specialist advice, but at the moment I'm just trying to get my head around the process and the big picture.
One of the problems is that trying to do anything remotely from the UK is very challenging. I'm jumping through any number of hoops trying to sort a Power of Attorney at the moment via the Consulate in London. Not just one POA, but eight because each brother and wife needs one for the sale to proceed.
Also though it pains me to say it, the general attitude in the Islands is not quite so "Can Do" as the mainland. I have friends with property in the Algarve who breeze through all this kind of thing.
Re specialist advice, in the UK one would use an accountant to mitigate tax liability but I'm not sure thats the case here. I'm trying to find an accountant who might be able to advise and struggling. Maybe it could be handled by a mainland accountant - but I tried one and frankly they weren't interested.
Re general process it would be useful to know if the property should have been registered in our names, and if the property should have been revalued at that point, and if this has been done. That is the impression I got from the estate agent who's doing the sale. But the Notary who handled the probate procedure is somewhat taciturn.
My next step is to phone and check the position with the Finance office - they were very pleasant and helpful when I was there last year. Also, for unrelated reasons, I'm in the process of acquiring Portuguese citizenship, This wont affect the tax liability, but it may allow me to access details of the property via the Finances Portal.
If anyone has any thoughts I'd be interested to hear them. Maybe someone knows a savvy accountant who might give advice?

wellinever

I thought that you could get a revaluation every 3 years. CGT on sale of property as a non PT resident is now same as PT resident (if you want).
That would mean instead of simple 28% on the gain, you could elect to pay CGT on 50% of the gain, but you would need to tell Financas if your worldwide income so that the 2 can be added together to give a tax rate, so all depends on the figures. If resident of UK the sale would need to be declared in UK with HMRC and CGT paid there as well. But any tax paid in PT would be deducted if the Tax in UK is higher than PT. As you have never lived in the flat it would be hard to prove that is your principal residence of ou could have claimed PPR in UK and paid zero CGT

Tommohawk

Thanks for that - your explanation of how CGT is calculated fits with my understanding of things, so thats reassuring. The outstanding issue for me is simply the process or calculation to determine the acquisition value. A good starting point would be to know if the Caderneta Predial should have been updated when the property passed to us sons, and how I can check if that has happened.
It looks as though I will need an accountant to file the CGT, and ideally I would have this sorted well in advance so I can know what the liability will be. I think I need to focus on that aspect, but in the interim it would be useful to know the situation WRT the Caderneta Predial. I have a contact address for the Servico de Financas - is that the correct department?

Red Eric

It is now revalued automatically every 3 years. I'm not sure another revaluation is necessarily triggered by inheritance if it's within that timespan.

As you have a NIF, are you (or any of the other heirs) registered for online access to Finanças? You should be able to obtain a copy of the Caderneta if you are and the last revision year will show on that.

Tommohawk

Thanks for that. Good idea about accessing the Portal - I think we all got NIFs and access code 12 months back, but these codes have expired. We do have a NIF and valid code for the estate, but of course what we want to see is what's in our own names. Is it your understanding that the value shown on the Cadernata Predial would be the value used as the acquisition value when doing the CGT calculation?

Red Eric

Yes, that's the value.

The Caderneta is only going to show one value for the property, although if it's now jointly owned there may be more than one named title-holder. I think that would depend on how much admin has already been done on the registration and what options were chosen (there's a process (habilitação de heirdeiros) which isn't obligatory but establishes things more clearly in these circs, with 3 modes of registration and levels of cost according to each option.

If you have a NIF and code for the whole estate, would that not enable you to sign in and drop down a Caderneta? As to individual value held, you'd presumably just divide that figure by the number of heirs?

Tommohawk

Thanks again - I'm making some progress! I logged on using my NIF and password given 12 months back and it worked - -but no Caderneta to be seen in my name. I then logged in using my mother's estate NIF and Pw and found it - and the value has updated slightly from 25,910 to 26,298.

But surely it would be wrong to use this as the acquisition value? It clearly has a much higher actual value. We've literally only just inherited it, and sold it immediately - it can't have really gained about 115,000 in value.

dingg

The issue is that you didn't purchase the property, you inherited at no cost to yourself....

Tommohawk

I'm not sure what to make of the observation that we inherited at no cost to ourselves. Leaving aside IHT, which doesnt apply here, that is the norm for inherited assets, isnt it?. The question is, has the property gained in value during our ownership by 115,00 euros????.

All the guides I can find for calculating CGT in Portugal say the CGT is paid on the increase in value - ie the capital gain - which is the difference between the acquisition value and the sale price. No reference is made to the Patrimonial Value shown on the Caderneta.

I'm pretty sure that if you inherit property in the UK and then sell it, the CGT is calculated on the probate value of the house at the time of inheritance. The taxman doesn't say "ah, but you inherited at no cost to yourself"
Of course the situation may differ in Portugal.

dingg

You didn't acquire it at any cost, be prepared to be disappointed about the cgt situation, its not the same as UK, don't compare the two.

Get proper guidance from a decent accountant, it may cost you BUT also may save you a lot.

Red Eric

I did a quick skim through some results from searches in Portuguese specifically about the sale of inherited property before confirming above that that (VPT) would indeed be the value used.

I'm afraid it very likely does.

This won't be of any consolation to you in your circs, of course, but looking at it from a slightly different angle, had you inherited from an estate on which you weren't exempt from inheritance tax, that value is the one which would be used to calculate the stamp duty payable.

macliam

Put simply, it's a very formulaic calculation and there is is no exception from it. According to the state, the value of the property you own is the value that they use to levy taxes, etc. If this value is less than the market value, or has been declared at less than the market value, or has not been updated to reflect the market value, then lower taxes have been assessed since the state's value and the "market" value diverged - to the benefit of the owner since that time.

Unfortunately, when that property is later sold, the value recognized by the state is then the one used in its calculations of the difference between it and whatever price is realised in the sale - the capital gain. If there are declarable expenses to reduce the "gain", then they will be taken into account, but the final number for the application of CGT is that revised difference between the registered value and the sale price..... and it is then just a matter of applying the percentage. Job done.

The only way in which you can change the capital gain calculation is to find some declarable expenses to reduce it - and the only person likely to be able to do that is an accountant who knows the Portuguese system.

Red Eric

I'm going to just add a little this assessment because the use of the VPT as the base for CGT calculation in this scenario has nothing to do with under-declaration, previous sale prices or updating of market value.

If a person buys and subsequently sells a property, the difference between declared purchase and sales price (less allowances) is used as the figure on which to calculate CGT, although if the sale price is less than the VPT then the VPT is used instead (unlikely but I can think of some scenarios where that might be applicable). So in that scenario, market values would largely apply.

However, in the case of the subsequent sale of an inherited property, there is (according to my brief delving into search results delivered from reliable sites) no mechanism for using the last purchase price or any deemed market value at the time of transfer of ownership as the base acquisition price. It is only the VPT which enters into it in this case, and, as we all know, the VPT is almost certainly not a reflection of current market value (mine, for example, is a shade under a quarter of what I actually paid for it nigh-on 20 years ago and the full price paid was declared and registered at that time, plus it has been revised since under new rules which were applied when things got all shook up as a result of the financial crisis and the so-called "bailout". I can't get the VPT updated to "market value" or what I paid for it, even if I wanted to, because that's not what it's for).