Local Accommodation – 2021 State Budget
During the crisis from 2008 to 2012, the interest in local accommodation increased in Portugal, becoming a resource for many families in Portugal.
If it was initially understood as a provision of services, soon the Government saw growth in this tourism subsector, to the point of regulating it and inserting a heavier tax burden. The laws have changed over the years, and at the end of 2020, there was another renewal for the 2021 State Budget, which could influence the entire real estate sector.
Photo by Paulo Almeida – Unsplash
The Before and After of Capital Gains
If in 2020 registering a property as local accommodation would imply a withdrawal of capital gains, in which the value at the time of acquisition and the value at the time of registration of the property in the Local Accommodation (AL) regime was determined, a tax of 50% was thus levied on the value. The same used to happen when the owner decided to withdraw his property from the local accommodation regime. The capital gain would be recalculated at the time of withdrawal, and the tax was 95% levied on the difference in value at the time the property was registered as local accommodation. Thus, taxes were paid on capital gains.
Currently, the new State Budget (OE) contemplates the ending of the capital gains calculation when subscribing to the AL regime or when withdrawing from it. The capital gain of the property is only taxed when the property is sold to a third party. Therefore, when the property leaves the business world and is leased for short term or private use, the capital gains tax is paid.
New Tax in the 2021 State Budget
In the first proposal presented for the 2021 state budget, the new tax would differentiate between taxpayers under a simplified regime, and those under an organised accounting regime. However, this new tax was only approved for taxpayers with an organised accounting regime, leaving taxpayers with a simplified regime out.
Taxpayers with an organised accounting regime are taxed on all depreciation, impairments and charges incurred during the operation of the local accommodation. The tax is applied in equal parts on the income of the year in which the operation of the local accommodation ends, this happens during the first year of disaffection and the following three years.
There were changes in the 2021 Budget in the way that capital gains are taxed after the property is sold. What was defined was that the sale of the property before the end of the first three years after the disaffection, will be taxed according to Category B, that is, the total number of years in which the property was in the private sphere will be taxed at 95%, as opposed to Category G, which would only be 50%.
Local Accommodation businesses suffered serious declines after the first lockdown in March 2020, which made many investors in this sector return to invest in long or medium-term rentals. The average price of long-term rentals in January 2021 fell 13.5%, compared to the same month of 2020. The summer of 2020 showed promise, so, most AL owners decided not to change the investment. But, at the end of last year, optimism started to fall again.
What we can always deduce is that the real estate sector is versatile and harmonises perfectly with any conjuncture. In the 2008 crisis, local accommodation was an ally of the growth of tourism in Portugal. Today, with the current health crisis, a slowdown is expected in this subsector, as well as a growth in the medium to long term rentals.