Capital Gains Tax Portugal: Your Definitive Guide

With attractive returns on investment and many desirable locations to choose from, Portugal is an excellent country to buy a property. Over the past few years, the Portuguese real estate market has garnered the interest of many international investors because property is very affordable compared to other Western European countries.

Taxation in Portugal can initially seem a little complicated as an important factor in the property purchase journey. In this Capital Gains Tax Portugal guide, we specifically focus on the Capital Gains Tax that Portugal imposes on monetary gains on asset sales, which is vital to understand when buying and selling property in Portugal.

We will explore what Capital Gains Tax in Portugal entails, how it affects Portuguese residents and non-residents who own real estate assets that you are considering selling, and any eligible circumstances for exemptions from Capital Gains Tax in Portugal.

The amount you pay depends on your residency status in Portugal. Portuguese residents pay Capital Gains Tax on 50 percent of the capital gain from the sale, while non-residents are taxed on the total amount of the capital gain from the property sale. As a non-resident of Portugal, the whole gain on the sale of a property in Portugal is subject to tax at a flat rate of 28 percent.

In order for taxation to take effect, you, as the property owner, will need to disclose the tax return for the year in which you purchased the house and the respective price paid when acquiring the property. If you have completed work or maintenance on the property, such as installing a new heating system, you should declare this. You will need to show the invoices and the amounts paid to be considered in the capital gains assessment.

If you are looking to reinvest your total selling price into a new property, then the potential capital gain may not be subject to tax. This is only applicable if the house you are selling is your permanent address and corresponds with your tax address, which will mean that you have Portugal tax residency.

An important consideration is the time period. You must purchase a new house and reinvest the total selling price 24 months before such a sale or 36 months after the sale. If this is the case, the owner needs to inform the Portuguese Tax Authorities (Autoridade Tributária e Aduaneira, AT) that they intend to reinvest back into the property market in Portugal.

Unlike in other countries, the Capital Gains Tax in Portugal only applies to gains made on real estate and investments. Therefore, personal items are not subject to tax, and inheritance tax is only subject to a limited form of Stamp Duty.

As a property owner it is vital to understand Capital Gains Tax in Portugal in 2024. It is also essential to understand how your exposure to this tax will depend on your Portugal tax residency status, how you own the asset, and, if it applies to property, whether it is your primary residence.

To learn more, our Property Taxes in Portugal guide shares more details about all the taxes related to buying property in Portugal. If you want to discover more about Capital Gains Tax on cryptocurrency investment gains in Portugal, consult our Portugal Crypto Taxes guide, which covers the topic.

Capital Gains Tax for Portuguese Residents

Regarding Capital Gains Tax, Portuguese residents are required to pay real estate taxes on worldwide property and investments acquired after 1 January 1989.

Shares, bonds, and securities are taxed at a flat rate of 28 percent. Assets deemed to be from a “tax haven” or blacklisted jurisdictions that offer favorable taxation schemes are taxed at a higher rate of 35 percent.

The rules are pretty generous for Portuguese residents. For instance, only 50 percent of the gain from the sale of real estate is liable to be taxed. There may also be exemptions available, so it is best to check with a financial advisor.

Capital gains on real estate are added on to other income for the year and are taxed at Portuguese Income Tax rates, which range from 14.5 to 48 percent. Once all real estate profits have been added to your other yearly income, taxation will take effect.

Portuguese Capital Gains Tax on real estate is based on the real estate added value, which is the amount obtained by subtracting it from the property’s sale value. For Portuguese residents, the tax on capital gains is only levied on 50 percent of this added value resulting from the acquisition value and the sale value. The Capital Gains Tax rate is applied to this result.

We can break this down into an equation using the variables below to clarify the calculation:

• SV: Sale Value of the property
• AV: Acquisition Value of the property
• CG: Capital Gains
• T: Capital Gains Tax
• R: Tax Rate

The steps to calculate the Capital Gains Tax can then be summarized as follows:

• Step 1: Calculate the Capital Gains (CG) as the difference between the Sale Value (SV) and the Acquisition Value (AV):
  CG = SV – AV
• Step 2: Since the tax is levied on 50 percent of the Capital Gains:
  Taxable Capital Gains = CG ÷ 2
• Step 3: The Capital Gains Tax (T) is then calculated by applying the Tax Rate (R) to the Taxable Capital Gains:
  T = R x (SV – AV) ÷ 2

Main Home Exemptions for Portuguese Residents

According to a 2024 report by PWC Portugal, if you reinvest the proceeds from a property sale into another main home in Portugal or anywhere in the European Union or European Economic Area (EU/EEA) that has a tax treaty with Portugal, then you will not have to pay tax on capital gains. Note that the property has to be your primary residence. To qualify, you will need to reinvest in the property market within 36 months after the sale of your property market or 24 months before the sale. Note that this tax exemption no longer applies to UK properties. This means that British expats who want to sell their Portuguese property to return to reinvest this money in the UK no longer benefit.

An additional capital gains relief for the benefit of retirees who are Portuguese residents also exists, according to the Portuguese Chamber of Commerce in the UK. If you are retired or above the age of 65, then you are tax-exempt on capital gains arising if you reinvest the proceeds from the primary home in a pension income fund or eligible insurance contract within six months after the sale.

Capital Gains Tax for Non-Portuguese Residents

Capital Gains Tax in Portugal is charged on the sale of property or other assets at a rate of 28 percent for individuals and 25 percent for companies. Residents pay taxes on just 50 percent of their capital gains, while non-Portuguese residents are taxed 28 percent on the whole gain on the sale of a property in Portugal.

If you are not a Portuguese resident but still a resident in a European Union country, then you can choose to be taxed as a Portuguese resident instead of at the sale income tax rates. Nonetheless, you will need to declare your worldwide income to calculate the correct and relevant rate of tax on the gain. Therefore, this may not be the most tax-efficient way forward for you.

If you own a property in Portugal through a non-resident corporate structure (i.e., a company, business, or trust), then the capital gains have only recently become taxable in Portugal. From January 2018, if 50 percent or more of a company’s value is owned by a non-resident and is comprised of Portuguese real estate, the gain on the transfer of shares attracts a 25 percent corporation tax rate. If it’s from a blacklisted jurisdiction, then this rises to 35 percent.

This only applies where the double taxation treaty between Portugal and the company’s country of incorporation provides Portugal with taxation rights. This is the case for US-owned companies, for example. There are also companies that are not affected. For instance, companies based in the UK or Luxemburg pay a corporation tax rate in their respective country rather than in Portugal.

Capital Gains Tax deductions for residents and non-residents in Portugal

There are instances where both residents and non-residents can apply for cost deductions from the Capital Gains Tax amount. These include:

• The request for the energy certificate
• The IMT
• The commission paid to the real estate agency
• Solicitor costs
• The deeds
• Charges for the appreciation of the property – for maintenance and conservation works, in order to increase the value of the property carried out in the previous 12 years and that are duly documented

Taxation on Rental Income

If you plan to rent out your property, you need to consider certain taxes. Rental income is taxed at 25 percent, while other income types are taxed at 28 percent. The applicable tax rate—either 25 percent or 28 percent—depends on the rental agreement’s purpose. Although tax rates may experience minor changes, they will always fall within this range.

Tax on long-term rentals

The 25 percent tax rate applies to long-term rental income from 2023 (for the entire year of 2023) in accordance with the Mais Habitação law passed in October 2023. Property owners looking to put their property up for long-term rentals can rent out their property with standard lease agreements, and a Local Accommodation License, referred to as the Alojamento Local or AL license, is not required as it is for short-term rentals.

It is important to note that the Mais Habitação law brought into effect new location restrictions for AL licenses. If you are interested in Portugal’s short-term rental market, you can learn more in our Short Term Rentals in Portugal: 2024 Update article.

Under the terms of the Mais Habitação law, the 25 percent rate can be reduced based on the duration of the rental contract if the monthly income does not exceed the general income price limits by 50 percent. The 25 percent rate can be reduced as follows:

• 25 percent for a duration of 2 to 5 years
• 15 percent for a duration of 5 to 10 years
• 10 percent for a duration of 10 to 20 years
• 5 percent for a duration of more than 20 years

Short-term rentals

Property owners who want to stay in Portugal for part of the year and earn passive income through short-term rentals on their property will need an Alojamento Local (AL) Local Accommodation License. Due to restrictions the Mais Habitação package brought into effect, there are new location restrictions for AL licenses. In addition to the restrictions implemented by the Mais Habitação package, new licenses for short-term rentals in certain locations and categories were suspended, including key areas such as Lisbon, Porto, and the Algarve.

However, there are locations and categories that were not included in the Mais Habitação package where it is still possible to obtain a new license, including the autonomous islands of Madeira and the Azores and some types of properties, such as houses.

It is important to mention that the Mais Habitação package also excluded some property types, including houses, from the new limitations. However, the new Portuguese government has expressed its intention to reverse some of the Mais Habitação measures and allow local authorities to define their own rules in this matter. We will keep you updated in the coming months regarding how this matter unfolds.  You can discover more about the Mais Habitação package and the current state of short-term rentals in Portugal in our, Short Term Rentals in Portugal: 2024 Update, article.

Tax deductions on rental income

Note that there are certain tax deductions that could apply to you. When you declare your rental income to the Portuguese Tax Authorities, there are deductions for fire insurance, as it is compulsory to have this for all rental properties. Additionally, property owners can deduct expenses such as the IMI, costs regarding obtaining the energy certificate, and condominium fees (if applicable).

You will need to present an invoice identifying the work carried out on the property and its location so you can receive deductions from tax on rental income. Keep in mind that there are specific differences between short- and long-term rentals. It is often worth speaking with an accountant who can help you regarding your tax return on renting property, particularly if you do not speak Portuguese or are unfamiliar with the processes.

There are also possible tax exemptions on rental income in the following cases where rental income:

• Is derived from contracts included in the Lease Support Program
• Is obtained through accommodation for displaced students and does not exceed the maximum affordable rental limits
• Is derived from rental contracts signed before 1990
• Is derived from properties previously used for local accommodation. This exemption applies to rents until the end of 2029 and must meet two conditions. Firstly, the local accommodation establishment must have been registered and used for this purpose by 31 December 2022. Secondly, the lease contract and registration with Finanças (Finances) must take place by 31 December 2024

Goldcrest: How We Can Help You

Goldcrest is a local buyer’s agent based in Lisbon that provides insightful real estate expertise and strategic advice. From sourcing to property acquisition, we offer a tailor-made service for our clients, assisting them in identifying outstanding investment opportunities in some of Portugal’s finest locations, from relocation to investment projects.

With us, we make the property purchase as simple and hassle-free as possible. Goldcrest will also ensure that the negotiation phase runs smoothly, providing you with an optimal purchase price. If you are thinking of relocating to Portugal, investing in the property ladder here, or would simply like to discuss your options, please book a call with us today.