On April 29, 2025, the Portuguese Supreme Administrative Court (Supremo Tribunal Administrativo, STA) issued Ruling No. 7/2025, establishing a uniform interpretation of tax law concerning the sale of an undivided inheritance share in Portugal. This landmark decision resolves conflicting jurisprudence and clarifies whether capital gains from such transactions are taxable under Portugal’s Personal Income Tax (Imposto sobre o Rendimento das Pessoas Singulares, IRS). This article breaks down the key aspects of the ruling and its implications for heirs, tax advisors, and estate planners.
The Legal Background
The case stems from a dispute between the Portuguese Tax Authority (Autoridade Tributária) and an heir who had sold her undivided share in the estate of a single immovable asset. The Tax Authority claimed that the sale generated capital gains taxable under Article 10(1)(a) of the IRS Code, which covers “onerous transfers of real property rights.” However, previous arbitral decisions had contradicted each other on whether such sales truly constituted a transfer of fundamental property rights, prompting this appeal for jurisprudential uniformity.
The Core Legal Question
The central issue the STA was asked to resolve:
Does the sale of an undivided inheritance share in a property (prior to its partition) generate taxable capital gains under Article 10(1)(a) of the IRS Code?
STA’s Answer: No Taxable Capital Gains on Undivided Inheritance Sales
The STA ruled in favour of the taxpayer, stating unequivocally that:
The sale of an undivided inheritance share does not constitute the transfer of a real property right.
Key Legal Points Behind the Ruling:
- No individual ownership before partition – Until the inheritance is divided, each heir holds a share of the estate, not individual assets. This means they do not own any specific property and cannot be said to transfer property rights.
- Legal distinction: estate share vs. property right – The heir sells their hereditary share, which is not a fundamental right to a specific immovable. Hence, no “onerous transfer of a real property right” occurs within the meaning of the IRS Code.
- Strict interpretation of tax law – The IRS Code’s rules on capital gains are not subject to analogy or broad interpretation. A transaction cannot be taxed under those rules if it isn’t expressly covered.
- Support from established jurisprudence – The STA reaffirmed earlier decisions (notably from 2009 and 2021) and legal doctrine confirming that only after partition does an heir acquire ownership of specific assets.
Jurisprudence Now Unified
The STA formally ruled:
The sale of an undivided inheritance share does not constitute an onerous transfer of real property rights under Article 10(1)(a) of the IRS Code and is therefore not subject to capital gains tax.
This unification of jurisprudence settles a long-standing legal uncertainty and strengthens legal predictability for taxpayers and practitioners.
Practical Implications
For heirs and estate planners, the STA’s decision brings significant legal and financial clarity:
- No IRS liability arises from the sale of inheritance shares while the estate remains undivided, even if the estate includes only real estate.
- Only after partition, when heirs receive specific properties, will any subsequent sale be considered a real property transfer, possibly triggering capital gains tax.
Conclusion
STA Ruling No. 7/2025 is a key legal development for taxpayers involved in inheritance matters. By confirming that the sale of an undivided share does not equate to the sale of a real property right, the Supreme Court of Portugal ensures better legal protection for heirs. It strengthens the integrity of tax law interpretation.
Need help with tax matters related to the sale of undivided inheritance share in Portugal?
At Madeira Corporate Services, we specialise in Portuguese tax law, estate planning, and succession matters. If you’ve inherited property or are considering selling your hereditary share, speak to one of our experts for tailored advice.
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