Capital Gains Tax in Portugal

Capital Gains Tax on Real Estate in Portugal (2024–2025)

The tax treatment of capital gains depends on your residency status and how the property was used.

1. Residents vs. Non-Residents

Following recent legal changes and European Court rulings, the tax treatment has been harmonized to ensure fairness:

• Residents: 50% of the gain is taxable. This amount is added to your other income and taxed at progressive IRS rates (currently 13.25% to 48%).

• Non-Residents: As of 2023, non-residents are treated the same as residents. 50% of the gain is taxed at progressive IRS rates (13.25% to 48%). To calculate the rate, the Portuguese tax authorities will consider your worldwide income to determine the applicable tax bracket.

AL (Local Lodging) Note: If the property was registered under an AL license (Alojamento Local), the tax calculation is different. If the property is moved from a professional activity back to a private asset, specific “extraordinary” rules may apply, but generally, gain calculation for business assets involves higher percentages of the gain being taxable (often 95%).

 

2. Key Exemptions and Reductions

• Reinvestment in a Primary Residence: If you sell your permanent residence, you are exempt from tax if you reinvest the proceeds into another permanent residence in Portugal or the EU/EEA. This must happen within 36 months after the sale or 24 months before.

• Properties Acquired Before 1989: Capital gains on properties purchased before January 1, 1989, are generally exempt from IRS, though they must still be declared on your tax return.

• Retirees & Pensioners (Over 65): If you sell your primary residence, you can remain exempt if you reinvest the gain into an investment fund or pension scheme (RSSV) within six months of the sale.

• Amortization of Mortgages: Under the “More Housing” bill, there are temporary windows where selling a non-primary residence to pay off a mortgage on a primary residence (for yourself or your children) may offer tax relief.

3. Practical Steps for Filing

– For All Sellers (Residents and Non-Residents)

• Reporting: All property sales must be reported in Annex G (or G1 for exempt properties) of the annual IRS return.

• Deadline: The return must be filed between April 1st and June 30th of the year following the sale.

• Deductible Expenses: You can reduce your taxable gain by deducting:

  • Costs of improvements made in the last 12 years (with invoices).

  • Transfer tax (IMT) and Stamp Duty paid when you bought the property.

  • Real estate agent fees (if you paid them to sell the property).

– Specifics for Non-Residents

• Tax Representative: If you reside outside the EU/EEA, it is mandatory to appoint a tax representative in Portugal. While optional for EU residents, it is highly recommended to ensure deadlines are met.

• No Withholding Tax: Unlike some other countries, there is typically no automatic withholding tax at the moment of the deed (Escritura) for real estate. The seller is responsible for filing the return the following year and paying the calculated balance.