TAX SAVINGS
THE ESSENTIALS OF URBAN REGENERATION
Properties located in designated urban regeneration areas, which are 30 years old or older and which, after regeneration, are intended primarily for residential purposes, offer an attractive set of tax and administrative advantages. Decree-Law No. 307/2009, which establishes the legal framework for urban rehabilitation, streamlined and relaxed the administrative procedures for prior control of these urban operations. Additional legislation was subsequently issued to further simplify administrative procedures and provide tax incentives.
Below is the essential information you need to make the most of this opportunity.
Renovation works can benefit from a number of tax incentives, with a significant financial impact on real estate businesses, ranging from exemption from property tax (IMI) to a reduced VAT rate. Find out what they are:
- EXEMPTION FROM PROPERTY TAX (IMI)
Buildings that have been, or will be, subject to urban renovation between January 1, 2008, and December 31, 2020, are exempt from IMI for a period of 5 years. This exemption may be extended for a further 5 years if the buildings are located in a specific urban regeneration area, or if they are rented urban buildings subject to phased rent increases, under the terms of the New Urban Lease Regime.
- IMT EXEMPTION
Purchase of a building for renovation.
Urban buildings intended for urban renovation are exempt from Municipal Tax on Onerous Transfers of Real Estate (IMT), provided that the respective works begin within 3 years of the date of purchase.
Purchase of a renovated home.
The first purchase of a renovated building or apartment is also exempt from IMT, provided that it has been purchased for permanent residence. This exemption is in force between January 1, 2008, and December 31, 2020.
- Reduced VAT
Urban renovation works benefit from VAT at a rate of 6%, provided that the properties are located in an Urban Renovation Area, and provided that the work is carried out on a contract basis and is part of renovation and refurbishment operations of recognized public interest or carried out under the special financial support scheme for buildings of the Institute for Housing and Urban Renovation (IHRU).
- IRS AND IRC BENEFITS
IRS – Tax deductions
30% of the costs of rehabilitation, up to a limit of €500, incurred by the owner, whether for properties located in an Urban Rehabilitation Area or for rented properties subject to phased rent updates under the New Urban Lease Regime, are deductible from IRS.
IRS – Capital gains
Capital gains from the sale of renovated property located in an Urban Renewal Area are subject to personal income tax at a rate of 5% between January 1, 2008, and December 31, 2020.
IRS – Rent
Property income from the rental of renovated properties located in Urban Renovation Areas is also taxed at a rate of 5%.
IRC
Income from the sale or rental of renovated buildings is not subject to IRC.