The IRS refund has become one of the most discussed topics among heirs and Portuguese taxpayers following a major decision by the Supreme Administrative Court. The recent ruling prohibits the Tax Authority from charging capital gains tax on the sale of hereditary shares of property—a practice that, until now, penalised thousands of families whenever an inherited property was divided among siblings. With this decision, the door is now open for reimbursement of the amounts unduly paid over the last four years, representing a significant opportunity for many families.

What has changed in the taxation of inheritances?

In recent years, the increase in property market value in Portugal has created a new reality for those inheriting houses or other assets. Traditionally, when multiple children inherited a property, each would receive their hereditary share—that is, their corresponding part of the ownership. Often, to simplify the division, one of the heirs would buy out the others by paying what is known as a "torna".

The Tax Authority treated this payment as equivalent to the sale of a property, requiring the payment of IRS on the capital gains generated, just as if the property had been sold to a third party. This interpretation was always contested, as the spirit of the law differed from its application in practice: an heir selling their share to a sibling was simply transferring their quota, not making an actual profit or carrying out a traditional market transaction.

Decision by the Supreme Administrative Court

The recent ruling by the Supreme Administrative Court clarified this issue. It determined that the sale of hereditary shares between heirs—particularly within the context of family divisions—should not be treated for tax purposes as a sale of property to a third party. In other words, there should be no capital gains tax due in the way the Tax Authority had been enforcing.

This decision has immediate practical implications: all cases where IRS was charged on the sale of hereditary shares in the last four years are now considered incorrect, paving the way for IRS refunds. From now on, taxpayers in this situation can begin the process of recovering the amounts they overpaid.

How to request an IRS refund related to inheritances

For those who sold a hereditary share or received “torna” payments in the last four years and paid IRS on the sale value, it is crucial to act quickly to ensure the right to a refund. The process involves reviewing the IRS return submitted in the relevant years and identifying the portion of income taxed as real estate capital gains resulting from the sale of the share.

It is advisable to contact a tax professional—such as an accountant, tax advisor or solicitor—who can confirm the specific case and assist with the request for tax reassessment. The IRS refund request is typically submitted to the Tax Authority through a reasoned application accompanied by supporting documents, including deeds, receipts, and bank records of the transactions involved.

Note that the complaint period is normally limited to the four years prior to the court ruling. Therefore, those who sold a hereditary share before that period should assess whether they are still within the legal timeframe.

Financial impact of the IRS refund for heirs

The IRS refund in these cases can amount to significant sums, especially as inheritance divisions often involve high property values due to rising prices in Portugal’s main cities and surrounding areas. For thousands of families, this IRS refund could mean recovering thousands of euros—money that can be reinvested or used to cover other expenses related to inheritance management.

Beyond the financial aspect, this clarification also represents a step towards fairer taxation, by preventing unjustified taxation of transactions that, in practice, do not constitute true real estate sales intended for profit, but rather internal family asset reorganisations.

The future of inheritance and property taxation

This ruling by the Supreme Administrative Court marks a significant shift not only in how the Tax Authority must now act, but also in how family successions are planned and managed. Notaries, lawyers, and solicitors will now be better positioned to inform heirs of their tax rights and obligations—particularly when dividing assets.

With this new understanding now established, greater transparency, fewer disputes, and a fairer relationship between the tax authorities and Portuguese taxpayers are expected. For those yet to go through an inheritance division or who plan to buy out their siblings’ shares, this decision provides extra reassurance that they won’t be unfairly penalised when calculating IRS.

The possibility of recovering unduly paid IRS on the sale of hereditary shares is an important step forward for thousands of Portuguese citizens who have experienced inheritance transfers in recent years. The Supreme Court’s decision ensures that tax law remains fair, striking the right balance between the public interest and protecting heirs’ rights. To benefit from this new legal framework, it is essential to act without delay and, where necessary, seek professional advice to ensure a smooth and timely refund process.

The IRS refund is a right for all heirs who, in recent years, were unfairly taxed on these family asset divisions. If this applies to you, get informed and assert your right with the competent authorities.

Source: SUPERCASA
General, Taxes and Fees, Real Estate Market, Portugal