Tax on rental income

[Maggyanne]

Hi
Can anyone help please.

We bought a home in Carverio last year which was at that time being rented out through a management company. The contract with them ended in October and we started repairs / renovations work. The rental company, paid tax on our property before they settled the accounts with us (we ended up owing them). We are now trying to claim back some of those rental expenses. The tax representative gave us a list of allowable expenses which included, laundry, cleaning and maintenance. However, they are now saying these items may not be allowed and if we make a claim that is not allowed then we will have to resubmit the return and will be fined. They say they cannot get a reply from the tax office as to what is and is not allowable so how on earth are we supposed to know what to do. Does anyone know?

[widge]

Hi Maggyanne, if you look back in the Property Section this topic was given a pretty thorough airing, in summary it's a mess!

Re: Tax on property rental
Postby widge » Thu Dec 19, 2013 10:13 am

After a couple of weeks we have received a response from the Lisbon tax office which rules that;
With effect from Jan 2012 no expenses other than for the maintenance and upkeeping of the property can be included in the tax declarations which means no electricity, gas, cleaning , commission, admin charges etc.etc.can be deducted.
As you can imagine this will have a very significant impact on the taxable income & therefore tax payable. My return is being adjusted accordingly for last year & I have registered as a business w.e.f Jan 2013. If that proves too expensive / problematic then we withdraw from the market, make the maid redundant, lose the agencies & the service suppliers & keep it for ourselves.

Portugal seem incapable of executing coherent regulations which are readily understood by those they choose to regulate or enforceable by those who are meant to administer them, a bit like the UK really.
widge
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[Maggyanne]

Thanks for your reply. We have just told the tax representative (before we received this reply) to include cleaning, laundry and repair/maintenance. I presume we will get it knocked back. We have been told by our tax rep that we will have to resubmit our return and will get fined if we have submitted any expense which is not allowable. Surely this can't be the case when the tax is already paid. They can go and whistle I'm not paying out anything else, it has cost us to rent our home, surely that cant be right. Hence next year like yourselves we will keep it for ourselves and family. Bad business for us but a huge cut in income for the Portuguese government should there be many holiday home owners in the same frame of mind.

[widge]

Thanks for your reply. We have just told the tax representative (before we received this reply) to include cleaning, laundry and repair/maintenance. I presume we will get it knocked back. We have been told by our tax rep that we will have to resubmit our return and will get fined if we have submitted any expense which is not allowable. Surely this can't be the case when the tax is already paid. They can go and whistle I'm not paying out anything else, it has cost us to rent our home, surely that cant be right. Hence next year like yourselves we will keep it for ourselves and family. Bad business for us but a huge cut in income for the Portuguese government should there be many holiday home owners in the same frame of mind.

Hi Maggyanne,

A brief lesson in Portuguese economics might help. There are 6500 properties to rent on Tripadvisor in Portugal mostly owned by foreign nationals. They advertise direct to the end user to cut out the middleman (agency) receive payment in their domestic currency direct to their bank account pay no tax and many are unlicensed. Maybe a sweeping generalisation but I think I'm not too far from the mark. These people will undercut you because they have a 40% advantage having no tax & no licence, therefore their villas sell first cos they're cheap.

Until they enforce the law you & I are stuffed !

[Maggyanne]

Hi

We have decided we are going to use our home for family holidays. We have toyed with the idea of renting our property out but our experience so far has totally put us off. There doesn't appear to be any benefit whatsoever. Still, we're looking forward to getting our renovations completed and enjoying our home in the sun. I just hope that the Portuguese government don't go ahead with their daft plan to tax all holiday homes, rented or not, if that's the case I think I'll just become a resident. I don't mind paying fair taxes but I draw the line at paying taxes on money that I haven't earned.

[joeysoap]

Hi

We have decided we are going to use our home for family holidays. We have toyed with the idea of renting our property out but our experience so far has totally put us off. There doesn't appear to be any benefit whatsoever. Still, we're looking forward to getting our renovations completed and enjoying our home in the sun. I just hope that the Portuguese government don't go ahead with their daft plan to tax all holiday homes, rented or not, if that's the case I think I'll just become a resident. I don't mind paying fair taxes but I draw the line at paying taxes on money that I haven't earned.

Have to agree with you Maggyanne on this one. We don't rent out, figured it's not worth it. Even if we did manage to get a reasonable return the tax in Ireland would screw us anyway (they allow the Portuguese tax paid) The bottom line is whatever tax is the highest is the tax you pay (be it Portugal at 28%, Ireland at 41% or Uk at ??%)so the Portuguese tax may not be the end of the story.

Didn't hear anything lately about Portugal taxing holiday homes, unlike you if they went down that road I think a good number of non residents would exit the market causing untold damage to the economy. Certainly something I would consider at that stage, along with a lot more I would think. Happy to have a holiday home in Portugal, the Portuguse do ok out of us non residents, between water, electricity (gas), IMI tax, and other costs that accumulate even when you are not in residence. When you are in residence they do a lot better with shopping, driving, restaurants and bars. If they are intent on killing a good thing then I suspect logic will play no part in their deliberations.

[Rampage]

A golden rule given to me many years ago by a company accountant: declare all income down to the last penny, but claim as many allowances as you can possibly think of. Tax authorities will come down hard on anyone who they believe is not declaring income but will often accept some dubious allowance claims if they believe that you are honest in your declared income. To this I would add - get a good accountant. I use Sovereign in Carvoeiro for my tax returns every year and they always seem to manage to get my tax bill down to a reasonable amount (sometimes zero). They are worth every cent of their fees (which are tax deductible anyway!).

[Maggyanne]

Hi, thanks for the advice but apart from the rental income on the house we don't earn any income in Portugal. My husband works in London and pays tax in the UK. The house is going to be used by us and family only. Hopefully next year we won't have to fill out a tax return. We used tax angels this year and they haven't been able to tell us what we can or can't claim so we've claimed everything. They didn't include their fee in the allowable deductions though. They have told us that if the tax authorities feel we have claimed for anything which is not allowed they will fine us and make us resubmit.........the tax is already paid we are trying to claim it back. How can they fine us?

[e-richard]

They are worth every cent of their fees (which are tax deductible anyway!).

Then why have they told me the opposite

[Maggyanne]

I'm totally confused. It's no wonder the country is in a mess. It seems no one has any idea of how to manage anything. Why is there not a list of tax deductible items, it can't be so difficult for the tax office to produce.

[RichardHenshall]

Article 8
Income in category F
1 – Rents derived from rustic, urban and mixed property paid or placed at the disposal of their respective owners is considered income from immovable property.

Article 41
Deductions
1 – From the gross income referred to in Article 8, there shall be deducted expenses of repair and maintenance that are the responsibility of the taxpayer and that are borne by him and supported by documentation as well as the annual municipal property tax that applies to the value of buildings or part of buildings the rental from which has been included in reported income.
2 - In the case of an autonomous fraction of building governed by the horizontal property regime, the costs of conservation, enjoyment and others that, in civil law, the condominium member is obliged to bear, that are borne by him and supported by documentation.

The above extracts come from a 2010 vintage document (in English) on the Portal das Finanças website.

[joeysoap]

........I use Sovereign in Carvoeiro for my tax returns every year and they always seem to manage to get my tax bill down to a reasonable amount (sometimes zero). They are worth every cent of their fees (which are tax deductible anyway!).

thats partly my point Rampage, depends on your UK liability, if its zero in Portugal that's terrific. But it would also have to be zero in Uk for it to be zero overall.

[Maggyanne]

Thanks Richard, if you have access to this document then why is my tax representatives so unsure as to what is and is not an allowable deductible expense. Not that I find the above easy to understand myself.

[Sheila]

According to a recent article in the AFPOP magazine
'If you let out furnished accommodation to tourists on a short term basis.......this activity receives special tax treatment under the "Simplified Regime"......you are only taxable on 15% of your invoiced income and the other 85% is automatically excluded to cover business overheads....'

This should make renting out much more attractive.

[Sheila]

According to a recent article in the AFPOP magazine 'If you let out furnished accommodation to tourists on a short term basis.......this activity receives special tax treatment under the "Simplified Regime"......you are only taxable on 15% of your invoiced income and the other 85% is automatically excluded to cover business overheads....'

This should make renting out much more attractive.