The (Non) Taxation of the Transfer of a Hereditary Share for Profit

In recent years, the taxation of gains obtained through the sale of hereditary shares has sparked intense debate in the Portuguese legal and tax landscape.

Recently, the Supreme Administrative Court (STA) ruling of 29 April 2025, which standardised the case law on the subject and clarified the interpretation of the applicable tax rules, has given the issue new importance.

What is a Hereditary Share?

To understand the scope of this decision, it is first important to define the concept of hereditary share.

When a person dies, their estate is passed on to their heirs, who initially receive it in undivided form. In other words, as long as the formal division has not taken place, the heirs do not have exclusive ownership of specific assets; rather, they have a share of the universality of the assets that make up the estate - the hereditary share.

The share thus translates into a merely abstract right, i.e. an ideal fraction of the assets of the undivided inheritance, which does not correspond to the exclusive ownership of a specific asset. In this way, the assets that make up the inheritance only become the heir's assets, becoming confused with their personal legal sphere, once specific assets have been awarded to fulfil their share.

The Traditional Understanding and the Position of the Tax Authority (AT)

Previously, the AT took the view that the sale of any part of the inheritance, namely the hereditary share made up of real estate, should be subject to capital gains tax under the terms of Article 10(1)(a) of the IRS Code. From the AT's point of view, this operation was treated as an onerous disposal of rights in rem over immovable property, and the heirs were obliged to pay tax on any resulting gains.

This interpretation, however, was the subject of multiple disputes, with taxpayers claiming that they were being "punished" for transferring ideal parcels of an undivided universality, when in fact they were not transferring specific rights in rem over specific immovable property. The AT's understanding, influenced by a literal reading of the rule, ended up creating legal and financial uncertainty for the heirs.

The STA Decision and the Uniformisation of Case Law

STA Ruling 7/2025 resolved this dispute, in that it ruled that the sale of the hereditary share, even if this share includes real estate, does not constitute an onerous sale of rights in rem over real estate and, consequently, the resulting gains are not subject to IRS taxation.

The STA clarified that what is transferred in the sale of the share is not the direct ownership of the assets that make up the inheritance, but rather an abstract and indeterminate right over the universality of the inherited assets, which excludes it from the scope of the tax incidence provided for real estate capital gains.

In addition, the STA emphasised that this non-taxation depends on unequivocal and formal proof - namely, it must be clearly stated in the public deed or equivalent document that the sale covers the entire right to the hereditary share, and not the sale of real estate isolated from the undivided inheritance. On the other hand, if specific assets of the estate are sold, then they will be subject to taxation.

Practical implications and relevance for heirs

1. tax exemption for the sale of a share

The sale of the inherited portion in isolation does not give rise to the payment of IRS on capital gains, which represents a significant saving for many heirs, especially in situations where the inherited estate is mostly made up of real estate.

2. Contractual precautions

To guarantee this exemption, it is crucial that contracts and deeds of sale are drafted in such a way as to make it absolutely clear that the object is the right to the inheritance (hereditary share) and not specific assets within the undivided inheritance. Documentary clarity is essential to avoid adverse tax interpretations.

3. Sale of Specific Assets

If an heir sells a specific asset that has already been individualised within the inheritance, they must pay IRS on the resulting capital gains and, in this case, the usual rules apply.

4. Possibility of Claim and Review

Many taxpayers who paid IRS on the sale of the inherited portion before the case law was standardised may be entitled to claim a refund from the AT, based on the STA's new binding interpretation.

Tax perspective: Opposition from the Tax Authority

Despite the Supreme Administrative Court's decision, the AT has shown some internal resistance and has even issued binding information to the contrary, which could lead to future conflicts.

Therefore, a lot of preventive attention and specialised support is recommended in order to defend taxpayers' rights, particularly in requesting ex-officio reviews or legal proceedings, if necessary.

Succession Planning and Legal Relevance

This understanding also reinforces the importance of succession planning and the proper formalisation of the division of assets, so that the transfer of assets is carried out safely and effectively from a tax and legal point of view.

Furthermore, the clear distinction between the sale of an inheritance share and the disposal of specific assets can be used strategically to optimise tax costs and guarantee legal protection for heirs.

Conclusion

The STA's jurisprudential standardisation is an important advantage for heirs who dispose of idealised shares of undivided inheritance, ruling out capital gains tax in these situations.

Antas da Cunha Ecija's Family, Succession and Family Businesses Practice Area has already been implementing this understanding in its consultancy practices, guiding the procedures for disposing of hereditary shares in order to guarantee the exemption provided for and the correct formalisation of the necessary documents.
It is therefore with particular satisfaction that we realise that the position we have been adopting over the last few years has finally been consolidated, unanimously accepted and expressly enshrined in the most recent court case law.

However, careful monitoring and proper documentary compliance are crucial to ensuring that this exemption is fully utilised.

The Family, Succession and Family Business team is available to provide detailed advice and personalised support, whether in matters of succession planning, the tax and asset management of the estate, or the defence of heirs' rights before the Tax Authority.