Luximos Christie's International Real Estate

3 steps to sell real estate inheritance

3 steps to sell real estate inheritance

Do you have a property for sale that you inherited? This article is for you. Find out how to sell an inherited villa, apartment or land without missing anything.

If you have inherited a villa and want to sell it because you already have your own house or to obtain an extra income, we explain to you, step by step, what you should do to sell the inherited property.

Do not forget that, in addition to inherited property, the debts of the deceased also pass to the heirs. For example, if the house credit is still ongoing and is not covered by life insurance, it will be the inheritance that will be used to liquidate it, even if it is necessary to sell the house.

Step 1: Calculate the capital gains

In the sale of a property, capital gains are generated for the seller that correspond to the profit he earns in the process. The following formula is used to determine these gains: Capital gains = Sales value (acquisition value x currency devaluation coefficient) - costs of purchase and sale (costs incurred in the valuation of the property), over the last 5 years.

But in the case of inherited property, what is the acquisition value to be taken into account if the beneficiary of the sale hasn’t acquired that property?

The IRS Code in Article 45 no 1 states that, in the case of assets acquired free of charge (such as inheritances), the acquisition value is considered to be that which has been taken into account for the purpose of assessment of stamp duty (or the former inheritance or gift tax), even if the transaction has benefited from exemption.

This value corresponds to the tax value that this property had in the land registry in the year in which it was transferred by inheritance. It will therefore be appropriate to check the values with the tax authorities, especially if the sharing has already been done for a long time.

With the passing of the years, the acquisition value has to be adjusted so that it makes sense today. Therefore, the Tax Authorities apply a monetary correction, which varies according to the year of purchase. The taxpayer only needs to indicate the amount of the acquisition. The remaining calculations are made by the Tax Authority.

By "costs incurred in the valuation of the property" we mean, for example, possible installation works such as the installation of a central-heating system in the dwelling. On the other hand, the "costs of purchase and sale" include, for example, the IMT (Municipal Tax on Onerous Transfers of Real Estate) and the deed of purchase of the sold house.

Step 2: Declare the sale of the property in the IRS

The sale of a property must always be declared in the Tax Authorities and in the case of inherited property it is no different. Gains obtained by individuals from the sale of real estate, i.e. capital gains, are subject to IRS taxation.

The income from this business must be included in Annex G of Model 3, to be delivered in the second phase of the income statement. If the property belongs to more than one heir, each heir must indicate his or her hereditary share.

Under the IRS Code, capital gains derived from the disposal of inherited property acquired before January 1, 1989 and from building land acquired before June 9, 1965 are not subject to IRS taxation. However, the declaration of income is mandatory in Annex G1 of Model 3. 

Note that, in an inheritance, the date of acquisition corresponds to the date of death, and not when the shares are made, even if the heirs will be awarded assets with a value higher than their ideal share.

If the established capital gain is subject to taxation, it is considered to be 50% for tax residents in Portugal. This means that 50% of the capital gains obtained from the sale of the property will be included in your personal income tax (IRS) and you will be taxed according to your tax bracket in that tax year.

However, if the property is declared a permanent home (HPP) and the value of the capital gain is reinvested in the purchase, construction or even works of a new HPP, the capital gain on the sale of the property is exempt from personal income tax. The investment must be made up to 36 months after the sale of the first property.

Step 3: Carrying out the deed

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Finally, the last step for the acquisition of a property corresponds to the execution of the deed of purchase and sale of the dwelling in the Notary Office, in the Land Registry Office or in one of the counters of the service Casa Pronta.

Please note that all costs with the deed will be borne by the buyer of the dwelling. In addition to the  document of the deed itself, there are a number of taxes that the buyer has to pay:

  • Stamp duty on the transaction = 0.8%.
  • Registration of the deed
  • Payment of IMT = Deed Value or Tax Asset Value (the greatest of these two) x Rate to be applied - Portion to be written off

Sometimes, when it comes to very old inheritances, a notarial deed may be required. If it is impossible to have access to the deed of acquisition or any other formal title, this justification serves to establish the successive treatment, thus making it possible to register the property in your name.

The notarial deed requires prior notification by the notary on written or oral request of the person interested in the deed. Public notices shall then be posted, for a period of 30 days, at the competent registry office, at the headquarters of the parish council of the situation of the property or at the registered office of the company and, when justified, at the headquarters of the parish council of the last known residence of the absent or deceased.

Another requirement is the publication of the deed, within a period of five days from its execution, in one of the most read newspapers of the municipality of the situation of the building or of the registered office of the company or, if there is no newspaper there, in one of the most read newspapers in the region. This may cost the buyer about 200 euros or more.

Justification deed certificates may only be issued after 30 days from the date of publication. If, within this period, a notice of opposition is received, presenting evidence in court, the deed may be annulled.

To arrange for the sale of the property you have inherited, contact LUXIMOS Christie's, which has specialist lawyers to assist you until the transaction is completed.

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