Building a new home from the ground up or restore an existing one?
That is the question and a valid one. It is true that the benefit of starting from scratch is the ability to create the exact house and landscaping that suit your preferences and demands. But it is also true that, when compared to a new home, a restored home can have a distinct charm and personality. Renovating a home also makes a significant contribution to the preservation of local history, legacy, and renewed value.
A growing number of people are opting to purchase a house or an apartment to renovate. Not just for the reasons listed above, but also because getting a property back can offer a lot of benefits including exemptions, benefits, and discounts. Additionally, there may be more incentives if the property is located in an urban rehabilitation area (ARU).
In this article you will be able to see all the resources available when you restore older homes.
What is the Urban Rehabilitation Area?
ARUs (Urban Rehabilitation Zones) are urban dwelling areas with a high concentration of deteriorated structures that require recovery and restoration. However, it is up to the municipal assemblies to dedicate the delimitation of the ARU by proposal of the City Council. The Legal Regime of Urban Rehabilitation sets the regulations applicable to these regions. There is no cap on the number of ARUs that one municipality may decide to establish.
What are the tax benefits for the restoration of real estate?
A list of tax benefits and assistance for urban rehabilitation are determined under Articles 45 and 71 of the Statute for Tax Benefits (EBF):
1. Municipal Property Tax (IMI)
Three-year IMI exemption starting with the year the works are finished.
If the property is meant to be rented out as permanent dwelling or is used for the owner's personal permanent housing, the owner may apply for the exemption to be renewed for an additional five years. (The EBF's Article 45(2). This exemption does not apply to properties designed for local lodging.
2. City Tax on Onerous Transmissions (IMT)
The buyer of a property may request an exemption from IMT if they carry out renovations. They must begin no later than three years after the date of acquisition.
If it is solely designed for own and permanent housing or lease for own and permanent housing, it will also profit from the exemption of IMT at the time of the first transmission of the repaired property (Article 45(2) of the EBF).
3. Property Income Tax (IRS)
According to Article 71(4) of the EBF, private owners may deduct up to 500€ (30% of the costs expended for urban rehabilitation purposes) from the collection.
4. Corporate Income Tax (IRC)
Income obtained in which at least 75% of the assets are immovable assets are subject to rehabilitation proceedings in the ARU if the owner is an investment fund established between the 1st of January 2008 and the 31st of December 2103 (Article 71(1) of the EBF shall be excluded from IRC).
However, according to Article 71(21) EBF, the exemption only pertains to real estate that started after the 1st of January 2008 and was finished by the 31st of December 2020.
5. Value Added Tax (VAT)
The 6% reduced VAT rate is applicable to urban restoration work done on buildings located in ARU.
6. Capital Gains Tax
According to Article 71(5) of the EBF, if the property's owner is an individual, the capital gains made on the property's initial sale after rehabilitation are taxed at a reduced rate of 5%, without affecting the option for encompassing.
The owner must be a taxable IRS person and a resident of Portugal in order for this reduced rate to apply.
7. Income
After the restoration work has been completed, the property income determined by the owner, a resident of Portugal and a taxable individual under the Internal Revenue Service, is taxed at a reduced rate of 5%. (The EBF, Article 71(7)).
8. Fees
Discount of 50% of the rates required for the assessment of the conservation status (Article 45(2) of the EBF). You are also eligible to a reduction or exemption from some city taxes.
Decreasing the cost of different municipal costs (occupancy rate of public road, for example). The amount is different in each municipality. Before beginning the work, check the local council for the discounts that apply to your situation.
How can I enjoy the benefits of Urban Rehabilitation Areas (ARU)?
You must take the actions we outline below in order to obtain the assistance for restoring older homes in the ARU. The property you intend to recover must, however, be added to an ARU as the initial step. Necessary confirmation of this information, you should visit the relevant City Council and seek the following papers:
Request to carry out the initial survey to ascertain the degree of conservation of the property.
Issuance of the urban rehabilitation certificate, either with previous notice to the City Council or with the application for a license for the urban operation.
This inspection process must be completed prior to the start of the work; the council is responsible for providing documentation of the start and end of rehabilitation actions. This organization is responsible for certifying the properties' conditions both before and after the rehabilitation work. Please be aware that the advantages for properties within the ARU differ between municipalities, therefore you should always notify the City Council of the location of the work.
Real estate recovery offers a cost-effective alternative to purchasing a new home, with expenses below those of doing so. Consult the city council, perform some maths, and make an investment in the home of your dreams.