Owners of holiday rental properties face Capital Gains Tax blow

11459Two news items relating to the Alojamento Local (AL) registration system for those property owners involved in short-term lettings to tourists further have reduced the chances of anyone registering without being forced to.

Owners who have their AL licence and who later remove their property from the scheme, for whatever reason, then are liable to pay capital gains tax, whether they are selling their property or not.

The current percentage of properties covered by AL registration is a parlous 20% of the estimated total private rental market – a figure the government does not dispute while taking little action to ensure or force compliance.

To collapse the illegal rental market would hit tourism revenue -  tourism being the economic sector showing the highest growth and the one that is allowing Portugal to adopt more of a swagger along the corridors of Brussels. The government needs tourists and needs them to spend money and to date has not acted to close the illegal rental market despite claims to the contrary.

For many property owners, the thought of being charged capital gains tax on top of the annoyance and cost of AL compliance is the final straw but those already registered are locked into a CGT charge should they withdraw from the rental market, so have decided to bear the costs of compliance, Social Security payments et al, whether they actually rent out their property or not.

This ludicrous situation, which everyone consider an absurd fiscal mess apaert from the governement, deters those applying for an AL licence to legitimise their property rental income while forcing owners wishing to return their property to private use to carry on.

"This issue of capital gains is one of the biggest obstacles to the legalisation of local accommodation," said Eduardo Miranda, president of the Association of Local Accommodation in Portugal (ALEP), adding that some owners "keep the registration and do not cancel the activity," just to avoid triggering a CGT charge which does not qualify for the usual 50% reduction, but is levied at 95% of the gain.

The little-known way around this is to register at Finanças under the category F tax regime where at flat rate 28% is charged but this may not be cost effective for many. A degree of specialist financial knowledge seems to be necessary in a market sector that should have clear rules and simple benefits for those who comply.

On the plus side, the recent amendments to the Alojamento Local registration system, that made it compulsory to gain the approval of other property owners if the property comes under ‘condominium rules’, are likely to be suspended until after the October 1st local elections - or may not be enacted at all.

The government has admitted that it did not bother to talk to everyone that could be affected by the law change and now is well aware that the proposed changes will not help its support at council level.

The revelation on June 2nd that Hortense Martins, a Socialist Party MP with shares in a hotel group, played a key role in developing AL amendments that disadvantage owners of properties under condominium rules, feasibly advantaging the hotel sector, does nothing to present a government that is on top of the Alojamento Local system. (Click HERE)

The Secretary of State for Tourism, Ana Mendes Godinho, is riding on a wave of anyway increasing tourist numbers but has failed to respond to the private rental market’s needs in which the avarice of the tax department has been allowed the upper hand.

The AL system remains an embarrassing muddle with 80% of property ownwers deciding to ignore the rules while pocketing the untaxed cash.



For property owners looking to go legitimate, contact the National Association of Local Lodging Establishments at www.nalle.pt  and ask afpop for information.

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0 #6 2.Sugars.in.my.tea 2017-06-18 08:52
Quoting mj1:
ahhh how true the old saying "if you want a problem ..ask a question"

I wonder do all the Portuguese with their adverts in pingo doce noticeboards etc for villas/apartments to rent ...do they all comply with the "law"? :-*

No, mj1, they don't; - and I'm not talking of law with a little l, but what should be a big L
Not only are any means of escape usualy non-existant, but basic safety AND fire-fighing/prevention equipment totally absent.
I suppose the question to ask is - 'would I be happy to sleep here tonight' when looking at these ads.
+3 #5 Charly 2017-06-14 08:22
Dear Peter Banks, a couple of years ago we "tested" the
accuracy of ASAE by sending them some complete dossiers (streetplan, activity plan, full identity of owners, etc) = denunciation. The result was SURPRISING:
1. ASAE responded by e-mail telling us that" they are not interested in the AL matters"
2. an inspector calles us by Phone telling that "by accident" he passed in the indicated street.... but he did not find they incriminated villa (although he had received the description + pictures".
That's Portugal !!!!!!!
+3 #4 Peter Banks 2017-06-14 08:07
Quoting Cara:

If you are aware that people, Portuguese or otherwise are not complying with the law, then you should inform the authorities.

That would be a full time job around here... It is up to the 'authorities' to catch tax evadewrs, not the public.

The AT inspectors are paid to do a job and simply fail to take any action about blatant tax evasion on a massive scale from non-AL property ownwers (Portuguese and foreign).

Any taxation system where 80% of people avoid paying can be said to be an abject failure.

Ed's right, the government does nothing because the flow of tourists that use illegal rental accommodation brings €billions into the country each year - why upset the system? This attitude is so unfair to those of us that follow the rules, jump through hoops, pay taxes and resent those who do not.

However, I am not going to start handing in lists of phone numbers to Finanças - it's their job to tackle this problem that they manage to condone day-after-day.
-1 #3 Charly 2017-06-13 13:43
Dear mj1 believe it or not but 80% of all villa owners and renters make advertisement for their property on a DAILY BASE and FULLY IN THE OPEN either via their own or the website of highly specialised renting companies, or in the newspapers or in the magazines,
or in the way you describe in Pingo Doce and all the other supermarkets.
Two remarks:
1. our Editor pointed out several times this week that only about 20% of the owners have an AL license and as such comply with the law !
2. It's about one of the easiest things in the workld to find and to locate "a villa for rent". As owners has to indicate compulsory their AL Licence number in the heading of each advertisement the selection legal/illegal is easily made. The only BLIND people in the world seems to be the Portugese ministery of tourism as they cannot solve the problem of the (120.000) illegal villa's. Or do I have to say they DO NOT WANT TO SOLVE THAT PROBLEM or ARE THEY SO STUPID, WEARD and maybe also ILLITRATED so that they cannot read what's written under there nose. Maybe they have to claim the help of Mister OWL ......
+1 #2 mj1 2017-06-12 19:00
ahhh how true the old saying "if you want a problem ..ask a question"

I wonder do all the Portuguese with their adverts in pingo doce noticeboards etc for villas/apartments to rent ...do they all comply with the "law"? :-*
+3 #1 Charly 2017-06-12 18:39
All this mess and shit is due to the fact that "a bunch of amateurs" think they are "experts" and all the others are "stupid and ignorant" . However the results in the field are dramatic, and a pure disaster. On top of that every year the Portugese governement misses about
1 billion income (for iva, social security and IRS) but once again.... who cares ???????? Yes, nobody does !

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