Will you have to pay Portuguese capital gains tax when selling a property? In Portugal, only half the gain is liable to tax and the main home is generally exempt. Portugal also offers a reinvestment relief for retirement-age homeowners investing in savings plans and pensions.
When buying or selling property, establish what the tax implications are. You are subject to the Portuguese capital gains tax regime if you are either a Portuguese tax resident selling a worldwide property, or a non-resident owner of Portuguese real estate. The tax treatment is the same for local and overseas property and, since January 2023, residents and non-residents benefit from the same tax treatment.
Portuguese property capital gains tax – the basic rules
When you sell a property, only 50% of your gain is taxable. Inflation relief is available once you have owned the property over two years. Property acquired before 1989 is not subject to tax.
The taxable gains are treated as income and combined with your other qualifying income for the year and your total earnings taxed at the scale rates of income tax. Rates start at 13.25% for income up to € 7,703 and rise progressively to 48% for income over € 81,199.
If you have non-habitual residence (NHR) status, you may not have to pay Portuguese tax when selling property outside Portugal if the gain is taxable in the source country under the double tax treaty – this is the case with UK property. This is a good opportunity to dispose of foreign property before your NHR 10-year term ends.
Main home reliefs
If the property being sold has been your main home, you may be able to benefit from one or both of the two reliefs available:
- for reinvesting the proceeds into a new main home (the ‘rollover rules’), and/or
- for reinvesting in a long-term savings plan or pension.
Reinvestment relief when rolling the proceeds over in a new main home
When you sell your main residence and use the proceeds to buy your new home, the gain is exempt from Portuguese capital gains tax, provided you meet the conditions. Your new home doesn’t have to be in Portugal, but does need to be in the EU or European Economic Area.
The entire proceeds must be reinvested. The only allowable deduction is the mortgage used to buy the property.
The property being sold must be in your name (not in a company) and you may need to demonstrate ‘history’ in it (registered as your address with the local authority, utilities, tax office etc).
There are time limits that need to be met. First, you have to declare the amount you intend to reinvest on your tax return for the year the property is sold. You must purchase your new home within 36 months and then move in within six months. A home bought in the 24 months before selling the first one also qualifies. If you can’t meet these deadlines, you will pay the tax after all plus penalties and interest. You can also reinvest in land provided you build your main home on it, again with time limits.
Reinvestment relief for retirees investing in a long-term savings plan or pension
If you are retired or aged over 65, gains made from selling your main home may be exempt from tax if you re-invest the proceeds into an insurance contract or pension. You don’t need to reinvest the entire proceeds here, though only the amount reinvested will be spared tax.
This relief is in addition to the main home rollover relief; you can benefit from both. This is helpful if you are downsizing and buying somewhere smaller at a lower cost.
The sale proceeds must be invested in a pension fund, state pension system or insurance contract within six months, and you need to indicate your intention to do so in that year’s tax return.
When reinvesting in a pension, you must receive a maximum annual payment of 7.5% of the value of the funds invested, so first speak to your tax accountant to confirm if you qualify.
Life assurance policies, where you can hold a range of investment assets within its tax-efficient structure, are eligible for this relief. If you are selling your home and do not wish to reinvest the entire proceeds into a new residence, you can invest the balance in a life assurance policy and benefit from the exemption.
Tax planning
Taxation is always complex and it is advisable to take personalised, professional advice before making any final decisions.
A specialist adviser can also recommend tax-efficient ways for you to hold your assets, so you do not pay more tax than necessary and your arrangements are suitable for your personal situation and objectives.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individual should seek personalised advice.
By Christopher Moore, Partner, Blevins Franks
Christopher Moore is a Partner at the Blevins Franks Algarve office, with a career in financial services spanning over 20 years. He holds the Accredited Product Adviser designation and Qualified Financial Adviser Certificate.
