CGT on Sale of Inherited Property
Sep 18th 2023, 6:55 pm
#16
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Re: CGT on Sale of Inherited Property
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).
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).
The other thing to remember is that the VPT has nothing to do with a `market place ` value. It has to do with the calculations used by authorities based on all sorts of criteria, bit like rateable values in UK which do not reflect market value.
Sep 19th 2023, 11:02 am
#17
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Re: CGT on Sale of Inherited Property
Hi again and thanks for those last responses - I've only just seen them.
I get the point that having a VPT lower than the market value is advantageous to the current owner in that it minimises liabilities for ongoing "council tax" or equivalent. I also understand that historically there has been a practice of under declaring the true purchase price to minimise stamp duty, which then exposes you to a higher level of CGT when selling the property.
The fact remains that if one purchases a property, declares the correct value at the time of purchase, and then sells it subsequently, the correct levels of Stamp Duty and CGT will be paid. The "advantageous" level of Council tax will be paid over the course of ownership due to the VPT being lower than the market value.
Whereas if, for example, a spouse inherits a property upon the death of their partner, were that partner to then dispose of the property, they get clobbered for CGT based on an entirely different calculation. Seemingly, in the absence of any true acquisition value, the VPT is used instead and a huge CGT bill is due. Is this really the case? Even if the property were the main residence of both partners?
In all of this I'm trying to track down an accountant, because whatever the outcome this will be necessary. If anyone has a contact that would be very helpful.
I get the point that having a VPT lower than the market value is advantageous to the current owner in that it minimises liabilities for ongoing "council tax" or equivalent. I also understand that historically there has been a practice of under declaring the true purchase price to minimise stamp duty, which then exposes you to a higher level of CGT when selling the property.
The fact remains that if one purchases a property, declares the correct value at the time of purchase, and then sells it subsequently, the correct levels of Stamp Duty and CGT will be paid. The "advantageous" level of Council tax will be paid over the course of ownership due to the VPT being lower than the market value.
Whereas if, for example, a spouse inherits a property upon the death of their partner, were that partner to then dispose of the property, they get clobbered for CGT based on an entirely different calculation. Seemingly, in the absence of any true acquisition value, the VPT is used instead and a huge CGT bill is due. Is this really the case? Even if the property were the main residence of both partners?
In all of this I'm trying to track down an accountant, because whatever the outcome this will be necessary. If anyone has a contact that would be very helpful.
Sep 19th 2023, 11:44 am
#18
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Re: CGT on Sale of Inherited Property
This all makes a mockery of the fact that there is no IHT in Portugal, when assets are transferred to immediate family.
Apart from the fact that CGT on sale of property is only on 50% of the gain.
Pity you didnt buy the property from your Mum before her death, at the VPT value.......
Apart from the fact that CGT on sale of property is only on 50% of the gain.
Pity you didnt buy the property from your Mum before her death, at the VPT value.......
Sep 19th 2023, 12:36 pm
#19
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Re: CGT on Sale of Inherited Property
Well the whole issue of taxation is necessarily a bit subjective and IHT is particularly emotive - I'll give that a wide berth. Issues of what is "fair" or not are obviously a bit elastic.
But from a "fairness" perspective, what I'm trying to say is that if over the period of my mothers ownership no CGT was due, as it was her primary residence, how come having owned the place for almost no time at all, a huge CGT bill accrues? That seems unfair.
BTW I'm puzzled by your closing comment - if we had bought the place from her at the VPT value, we would definitely be liable for CGT based on that as the acquisition value, no? Had we bought it at the market value, we would have had to pay stamp duty, but no or minimal CGT. Maybe I've misunderstood?
But from a "fairness" perspective, what I'm trying to say is that if over the period of my mothers ownership no CGT was due, as it was her primary residence, how come having owned the place for almost no time at all, a huge CGT bill accrues? That seems unfair.
BTW I'm puzzled by your closing comment - if we had bought the place from her at the VPT value, we would definitely be liable for CGT based on that as the acquisition value, no? Had we bought it at the market value, we would have had to pay stamp duty, but no or minimal CGT. Maybe I've misunderstood?
Sep 19th 2023, 12:53 pm
#20
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Re: CGT on Sale of Inherited Property
Well the whole issue of taxation is necessarily a bit subjective and IHT is particularly emotive - I'll give that a wide berth. Issues of what is "fair" or not are obviously a bit elastic.
But from a "fairness" perspective, what I'm trying to say is that if over the period of my mothers ownership no CGT was due, as it was her primary residence, how come having owned the place for almost no time at all, a huge CGT bill accrues? That seems unfair.
BTW I'm puzzled by your closing comment - if we had bought the place from her at the VPT value, we would definitely be liable for CGT based on that as the acquisition value, no? Had we bought it at the market value, we would have had to pay stamp duty, but no or minimal CGT. Maybe I've misunderstood?
But from a "fairness" perspective, what I'm trying to say is that if over the period of my mothers ownership no CGT was due, as it was her primary residence, how come having owned the place for almost no time at all, a huge CGT bill accrues? That seems unfair.
BTW I'm puzzled by your closing comment - if we had bought the place from her at the VPT value, we would definitely be liable for CGT based on that as the acquisition value, no? Had we bought it at the market value, we would have had to pay stamp duty, but no or minimal CGT. Maybe I've misunderstood?
Sep 19th 2023, 1:34 pm
#21
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Re: CGT on Sale of Inherited Property
I get the point that having a VPT lower than the market value is advantageous to the current owner in that it minimises liabilities for ongoing "council tax" or equivalent. I also understand that historically there has been a practice of under declaring the true purchase price to minimise stamp duty, which then exposes you to a higher level of CGT when selling the property.
The fact remains that if one purchases a property, declares the correct value at the time of purchase, and then sells it subsequently, the correct levels of Stamp Duty and CGT will be paid. The "advantageous" level of Council tax will be paid over the course of ownership due to the VPT being lower than the market value.
The fact remains that if one purchases a property, declares the correct value at the time of purchase, and then sells it subsequently, the correct levels of Stamp Duty and CGT will be paid. The "advantageous" level of Council tax will be paid over the course of ownership due to the VPT being lower than the market value.
Whereas if, for example, a spouse inherits a property upon the death of their partner, were that partner to then dispose of the property, they get clobbered for CGT based on an entirely different calculation. Seemingly, in the absence of any true acquisition value, the VPT is used instead and a huge CGT bill is due. Is this really the case? Even if the property were the main residence of both partners?
But if the property were jointly bought and owned and the surviving spouse becomes sole owner on the death of their partner, on any subsequent sale, CGT would be calculated on the basis of 2 different acquisition values, the first being half the price declared at the time of purchase and the other on half of the VPT at the time of, or up to 2 years prior to, the death of the spouse. For main residences, there are, however, ways of reducing or eliminating the CGT liability which aren't available with regard to sales of other property.
Sep 20th 2023, 4:40 am
#22
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Re: CGT on Sale of Inherited Property
Just returning to this one point for a moment as it hasn't been fully addressed yet :
CGT only becomes due when a gain is realised, ie when an asset is disposed of. You wouldn't pay any CGT at all on this property if you, in turn, held on to it for the rest of your life and passed it on as part of your estate.
This is nothing to do with its being a primary or other residence.
[...]But from a "fairness" perspective, what I'm trying to say is that if over the period of my mothers ownership no CGT was due, as it was her primary residence, how come having owned the place for almost no time at all, a huge CGT bill accrues? That seems unfair.[...]
This is nothing to do with its being a primary or other residence.
Sep 20th 2023, 6:30 am
#23
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Re: CGT on Sale of Inherited Property
does this apply?? see step 2....original date of purchase
https://supercasa.pt/en-gb/noticias/...-to-know/n2922
https://supercasa.pt/en-gb/noticias/...-to-know/n2922
Sep 20th 2023, 9:45 am
#24
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Re: CGT on Sale of Inherited Property
Just returning to this one point for a moment as it hasn't been fully addressed yet :
CGT only becomes due when a gain is realised, ie when an asset is disposed of. You wouldn't pay any CGT at all on this property if you, in turn, held on to it for the rest of your life and passed it on as part of your estate.
This is nothing to do with its being a primary or other residence.
CGT only becomes due when a gain is realised, ie when an asset is disposed of. You wouldn't pay any CGT at all on this property if you, in turn, held on to it for the rest of your life and passed it on as part of your estate.
This is nothing to do with its being a primary or other residence.
The point made below is also interesting....
Sep 20th 2023, 10:16 am
#25
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Re: CGT on Sale of Inherited Property
does this apply?? see step 2....original date of purchase
https://supercasa.pt/en-gb/noticias/...-to-know/n2922
https://supercasa.pt/en-gb/noticias/...-to-know/n2922
I'm not sure it's quite so simple for a couple of reasons. Firstly my mother inherited the property from her mother - I need to check that date - so that may further complicate things. But more importantly, the wording of that 1989 rule is a little ambiguous. The link you cite says "capital gains derived from the sale of inherited property purchased before January 1, 1989 and land for construction purchased before June 9, 1965 are not subject to IRS taxation."
But these reports below both talk in terms of the acquisition date viz "if you acquired the property before 1 January 1989, it is not liable for capital gains tax."
https://www.blevinsfranks.com/portug...tal-gains-tax/
https://en.vernonalgarve.com/news-de...changed-_21030
So the property was purchased (in the first instance) prior to 1989, but was acquired after 1989.
I searched for the Annexe G1 to see the wording more exactly and whilst I couldn't find it I did find this: https://www.montepio.org/ei/pessoal/...-pagar-de-irs/
Here's a translated excerpt:
How do you declare?
To declare the sale of a house, submit Annex G or Annex G1 (or both), depending on the year of purchase. Therefore, if you sold a house that you purchased after January 1, 1989, you must declare the business in Annex G. If the house you sold was purchased after that date, the annex to fill out is G1. If the property sold was acquired on two occasions, before and after January 1, 1989, complete the two annexes. This last situation applies to inheritances (see example below).
Example
In 1988, Francisco, the only son, inherited, upon his father's death, 25% of a house. In 2010, his mother passed away and Francisco inherited the remaining 75% of the house. However, in 2022, he decided to sell the house. In the 2022 IRS, due in 2023, Francisco will have to declare 25% of the value in Annex G1 and the remaining 75% in Annex G.
Note that this conflates the meaning of "purchased" and "inherited" but it does imply that the date the property was inherited is the key date, not the date it was originally built. Unfortunately.
What it doesnt say however, is what acquisition value is actually used for the calculation when the property is inherited. Which kind of brings us full circle.
Sep 20th 2023, 4:39 pm
#28
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Sep 21st 2023, 8:02 am
#29
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Re: CGT on Sale of Inherited Property
You should talk to Eurofinesco; this is what they do every day.
My understanding is that in most cases, capital gains is levied by the country where the property is located; but in case you escape that you may be taxed by the country where you are a tax resident.
But there are all sorts of Ifs, Ands, and Buts.
You will not be taxed twice.
My understanding is that in most cases, capital gains is levied by the country where the property is located; but in case you escape that you may be taxed by the country where you are a tax resident.
But there are all sorts of Ifs, Ands, and Buts.
You will not be taxed twice.
Sep 21st 2023, 12:12 pm
#30
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Re: CGT on Sale of Inherited Property
You should talk to Eurofinesco; this is what they do every day.
My understanding is that in most cases, capital gains is levied by the country where the property is located; but in case you escape that you may be taxed by the country where you are a tax resident.
But there are all sorts of Ifs, Ands, and Buts.
You will not be taxed twice.
My understanding is that in most cases, capital gains is levied by the country where the property is located; but in case you escape that you may be taxed by the country where you are a tax resident.
But there are all sorts of Ifs, Ands, and Buts.
You will not be taxed twice.
