T07E - Capital Gains Tax
Category : Taxation
T07E - Capital Gains Tax
Note: These guidelines are intended only as a summary. Tax laws and regulations change frequently and sometimes unexpectedly. It is strongly recommended that you seek professional advice.
The sale of a property located in Portugal, whether the seller is a resident or non-resident, must be declared to the tax office in Portugal. Selling a permanent home in Portugal has a specific legislation and the Capital Gain may be exempt of taxes if the amount of sale is reinvested in another permanent home in any EU country. The sale of shares, from Companies in Portugal or abroad, will have to be declared in Portugal only if the seller is a registered resident in Portugal.
Those who are registered as residents in Portugal or with income arising in Portugal are required to submit form Annex G (Capital Gains Tax), along with their general tax return forms in April/May, in the fiscal year following the one in which the income arose, for any of the following forms of Capital Gain:
Transfer of any kind of property
Transfer of stocks or shares
Transfer of rights of parts in commercial, industrial or scientific sector
Transfer of contractual positions or other rights related to contracts for purchasing real estate
Transfer in derivative financial instruments, with the exception of expected gains in swap of interests
Onerous transfer of Loans, Additional and Accessory Capital on Companies.
Literary rights and winnings from gambling
The gains arising from the following situations are exempt of this tax:
Shares in partnerships acquired before 01/01/1989
Housing purchased prior to 01/01/1989 (this might change, when property has been used for holiday lets – see Bulletin H13)
Construction plots acquired by gift or inheritance prior to 08/06/1965 as well as rural property
Government bonds and debentures
When the sale is exempt of tax it needs to be declared anyway. In this situation Annex G1 needs to be submitted.
Capital Gain on real estate
For residents of Portugal, 50% of the Capital Gain is free of tax. The Income tax rate will be calculated on the other 50% and according to the full Income of the year and it will be accumulative.
The Capital Gain is calculated on the balance between the purchase price, plus all taxes and notary fees with the purchase, and the sale price. The commission paid to a Real Estate agent can be also deducted when the sale was mediated by an officially registered Real Estate Agent. This needs to be mentioned on the Sale Deed. Currency devaluation coefficients are used to update an acquisition value to the present day, whenever more than 12* months (adjusted in May 2024) have elapsed between the date of acquisition and the date of sale. In this way, you will be comparing values that are effectively comparable today, the sale value and the purchase value. This is because €1,000.00 today do not have the same value as €1,000.00 in 2010, due to the effect of inflation. Latest coefficient tables, Ordinance from November 2024, you will find HERE
Any major improvements made on the property up to 12 years prior to the sale, can also be deducted from the Capital Gain but must be properly documented (official invoices).
New rules
Decree-Law No. 57/2024 brings into force the new rules on the exemption of capital gains on the purchase and sale of houses. This legislation came into force on 11th of September 2024 but does not have retroactive effects.
Therefore, two tax regimes will be in force simultaneously: one for consumers who sold their permanent home before 10th of September and another regime for those who sell it after that date. The date of sale of the house is decisive to which tax regime it applies.
Until 10th of September 2024 the old regime applies in which the minimum period between the sale of the permanent home and the purchase of a new home for the same purpose is 24 months. Families can only benefit from the IRS exemption on capital gains from the sale of the home if they have not done so in the previous three years.
From 11th of September 2024 the new tax regime of exemption from IRS on capital gains will apply. The period between the purchase and sale of the same permanent residence (proven by the respective tax domicile) will be 12 months and the family does not have to worry about whether they have already benefited from the capital gains, because they can use this regime more than once as the criterion that excluded those who “in the year in which the gains were obtained and had already benefited from this regime in the three previous years” was eliminated.
Meaning that anyone who sells the house before 10th of September will have to have lived in it for two years, otherwise they will not be able to benefit from the regime. However, anyone who sold the house on 11th of September or later will only have to have lived in the property for one year to avoid paying IRS on real estate capital gains.
Exceptional circumstances shall be considered, namely, changes in the composition of the respective household due to marriage or de facto union, dissolution of marriage or de facto union, or an increase in the number of dependents.
Selling a permanent home with a Capital Gain, doesn´t mean that Income Tax has to be paid. If the money of the sale will be fully reinvested within 36 months after the sale or has been reinvested 24 months prior to the sale no tax needs to be paid. If there is a mortgage, the amount paid of the mortgage reduces the amount to reinvest, but the mortgage must have been taken out to acquire the property, to qualify.
The reinvestment must be in another permanent home. It can be in another EU country, or country that belongs to the European Economic Area (EEA), which mainly includes all EU plus Norway, Iceland and Liechtenstein. If the reinvestment is not total, the Capital Gain will be taxed proportionally.
The new home has to be registered as the permanent home within 12 months after the purchase.
The intention of reinvestment in permanent new housing, should be reported in the Model 3 IRS declaration.
Selling a second home does NOT have the benefit of the reinvestment**
** Extraordinary exemption:
The sale of land for construction or secondary housing during the years 2022, 2023 and 2024 is exempt from the payment of capital gains, as long as the sellers use the value obtained from the sale to repay the outstanding capital in housing credit contracts in the following three months.
To be exempt from capital gains, the amortisation can be done of a credit contract for the owner's own permanent home who sold the secondary home or in the permanent home of their descendants (children or grandchildren); it is necessary for this loan to already exist at the time of the sale of the property.
This last measure will make it possible to relieve families of the costs incurred with bank loans, without penalising them with capital gains tax arising from the sale of secondary homes carried out between 1st of January 2022 and 31st of December 2024.
Clarify any doubts about the extraordinary exemption from capital gains with your accountant.
Selling house to the Portuguese State
The Mais Habitação law also provides for an exemption from capital gains taxation for owners who sell houses to the State. Please contact your accountant if you are interested in selling your house to the State and to check if and how you can make use of this exemption.
Capital Gain on real estate for non-residents
The taxation at the flat rate of 28% of Capital Gain from the sale of real estate earned by non-residents has been revoked in the Portuguese State Budget of 2023. Non-Residents therefore also enjoy 50% of the Capital Gain free of taxes if they sell a property after 1st of January 2023, the other 50% will be taxed as personal income at marginal rates.
Expenses to deduct
The expenses that can be offset against the Capital Gain are the following:
Real Estate Commission on the sale
Major Improvements made to the property on the 12 years prior to the sale
Legal Fees, Notary Fees and Transfer tax on the purchase of the property that is being sold.
Capital Gains on shares and other movable property
From January 1st 2023, the Portuguese taxation of short-term Capital Gains from the sale of shares and other movable property has changed significantly.
Capital Gains from the sale of shares and other movable property will be mandatorily aggregated with the taxpayer's remaining income and taxable at the progressive personal income tax rates if, cumulatively:
the underlying assets were held for less than one year prior to the sale, and
the taxpayer's total taxable income, including those Capital Gains, equals or exceeds the last tax bracket.
Capital Gains that do not fall, cumulatively, within the requirements above will not have their taxation rules changed, and the same flat 28% rate will continue to apply in most cases.
The sale of properties by Companies, are subject to the rules of the Corporate Tax Code. The situation of the sale of properties held by an offshore entity or any other form of non-resident company should be reported on the company’s IRC declaration.
Reinvestment scheme for retired taxpayers or 65 years of age or older
Taxpayers in retirement or aged 65 years or older can benefit from the total or partial exclusion of taxation of the gains even if they don’t reinvest the sale value in the acquisition, construction or expansion of another permanent house. In such cases the taxpayers must reinvest in:
Life insurance contract
Individual membership in an open pension fund or
Contribution to the public capitalization regime
Pan-European Individual Savings Product
The taxable person or the respective spouse, on the date of the transfer of the property, is evidently in a state of retirement or is at least 65 years of age.
The acquisition of the life insurance financial insurance contract, the individual adhesion to an open pension fund or the contribution to the public capitalization regime is made within the six months following the date of realisation.
If the investment is made through the acquisition of a life insurance contract or individual adhesion to an open pension fund, these are intended exclusively to provide the acquirer or his or her spouse with a regular periodic payment during a period 10 years or more, with a maximum annual amount equal to 7.5% of the amount invested.
If the regular payment of the benefits is not fulfilled or their value exceeds the amount above, the tax exclusion will no longer apply and the discharge of the tax will be made by reference to the year in which the period for reinvestment is concluded.
Like the existing regime for reinvestment in own and permanent new housing, these taxpayers should also report in their Model 3 IRS declarations the intention and subsequent implementation of the reinvestment.
Houses in Local Lodging (Alojamento Local):
In the State budget of 2021, the simplification of Capital Gains was announced, namely as regards to the (dis) allocation to Local Lodging - the Capital Gains of a property will only be calculated when the property is sold to third parties, due to the transfer between personal assets and the assignment to a commercial activity and vice versa.
The moment of the sale of the property can now have a significant weight in the final amount of tax payable.
When it comes to providing a service, taxpayers within this activity will be taxed in category B and Capital Gains in category G.
It is strongly recommended that you seek professional advice of an accountant to assist you with this.
Source OE2024/2025
Finanças CIRS
DECO
Idealista
