The transfer of an inheritance raises relevant questions in the field of Tax Law, specifically whether it qualifies as a taxable event under the Personal Income Tax (IRPF), more specifically in category G, related to capital gains.

A frequently asked question is whether the sale of an inheritance, when it consists of real estate, should be taxed under article 10.1 a) of the IRPF.

The answer, as will be seen, is negative since it does not constitute an onerous transfer of real rights over real estate, but rather a transfer of a legal position of indeterminate universality, which excludes it from the objective scope of the invoked tax rule.

Indeed, the hereditary share is, by definition, an ideal and abstract right over the inheritance as an undivided mass of assets.

Until the partition occurs, no heir has full rights over specific assets, whether real estate, securities, or other assets.

In this context, the transfer of an inherited share represents the transfer of the heir’s legal position in the inheritance, and there is no identification or appropriation of specific real estate in this act.

The Supreme Court of Justice has held that “the right to the hereditary share is an abstractly considered and ideally defined right, as an expression of an uncertain estate […] and does not correspond to the ownership of any specific asset until its partition, according to the Supreme Court of Justice ruling in case 2752/07.8TBTVD, dated February 9, 2012.”

Considering the above, the question arises whether, in the case of the sale of the inherited share, consisting solely of real estate, the payment of capital gains tax will be due under the terms of article 10.1.a) of the Portuguese Personal Income Tax Code.

The rule in question states that gains obtained from the “onerous transfer of real rights over real estate” are subject to IRPF.

This legal provision refers to the transfers of ownership of real rights (such as ownership, usufruct, use, or habitation) over specific real estate.

In the case of the sale of an inherited share, the object of the transfer is not a real right over a specific real estate, but rather a global and expectant credit right over the inheritance, which has not yet been divided.

As recognized by doctrine and case law, the transfer of an inherited position does not confer ownership of any specific asset on the acquirer, and this ownership is only defined with the partition, which may take place years after the sale.

Only when the inheritance is divided does the heir become the full owner of the property rights and, therefore, can exercise the respective rights; until then, while the deceased’s estate remains undivided, the heir only has the right to their ideal share (i.e., the hereditary share).

Therefore, when the hereditary share is sold, what the heirs are transferring is the right to the inheritance, that is, the right to the undivided hereditary share.

In this line, the Arbitration Court constituted in the CAAD ruled on December 23, 2022, in case no. 247/2022-T, which dealt with the taxation, as capital gains, of the income derived from the sale of the inheritance, when it consists solely of real estate.

The Portuguese tax system is governed, among others, by the principles of legality and tax typicity, which means that the legislator must clearly and precisely describe the taxable events, and analogies or interpretative extensions that create tax obligations not provided for by law are not admissible.

In this context, the sale of the inherited share is not classified as a taxable event in category G of the CIRS. Therefore, the attempt to qualify it as an “onerous transfer of real rights over real estate” is incompatible with the letter and spirit of the tax rule and clashes with the principles of legality and typicity.

Legal certainty and tax justice require the Portuguese Tax Administration to respect the limits of the legal rule and the legal qualification of the inheritance institute, refraining from taxing situations that do not fall within the current legal regime.

Sometimes the Portuguese Tax Administration misinterprets these cases and notifies taxpayers that they must pay undue taxes as capital gains, with all the costs and inconveniences that this entails.

Belzuz Abogados, S.L.P. has a specialized team in Tax Law, prepared to analyse your case rigorously, represent your interests before the Tax Administration, and avoid undue tax payments, always with a focus on preventing litigation.