Court declares that sale of inheritance shares is exempt from IRS on capital gains

The court considers that heirs can only be considered owners after the inheritance has been shared, and taxes cannot be charged on capital gains beforehand. The Federal Revenue contests the decision.

A recent decision by the Administrative Arbitration Center (CAAD) reiterated that the sale of hereditary shares is not subject to IRS on capital gains and is being challenged by the Tax Authority (AT). The decision reflects jurisprudence from higher courts and four other previous arbitrations, but the AT insists on taxation, claiming that there is an alienation of real rights over real estate.

The most recent case involved an undivided inheritance consisting of a single property and three heirs, one of whom sold his share to a third party. Despite declaring the sale with the IRS, the taxpayer omitted capital gains and was faced with an additional payment of 4200 euros. The arbitration concluded that cancellation of liquidationarguing that the hereditary share represents an abstract right over the entire inheritance, not being a specific real right.

According to tax inspector Rogério Fernandes Ferreira, the hereditary share is “an abstract right over assets, rights and obligations of the inheritance” and only after sharing do the heirs become owners of specific assets. Luís León, also a tax expert, reinforces that current legislation does not provide for taxation of the sale of hereditary shares, which puts heirs who sell before the division at a tax advantage in relation to those who sell after the division of the assets.

The AT contests this interpretation, arguing that each heir’s share amounts, even before the partition, to a real right over the property. The entity has already appealed to the Supreme Administrative Court (STA), requesting a ruling to standardize jurisprudence, pointing to a previous decision, from 2017, which ruled in favor of the Tax Authorities in a similar situation, reports the .

While the STA does not decide, the trend of jurisprudence favors taxpayers, although experts warn of the possibility of applying anti-abuse rules if it is proven that the sale of the share was a strategy to avoid taxes.