Property and taxes in Portugal: confused?

Capital gains tax is charged on the sale of all property sold by a Portuguese tax resident, irrespective of where the property is located, or if it was your main residence or not. Capital gains tax is also payable by non-residents who sell property located in Portugal.

Selling your main home in Portugal
If you are a Portuguese tax resident and sell your main home in Portugal, it may come as a shock that capital gains tax is due on the sale (unless the property was purchased before 1st January 1989, in which case no capital gains tax applies).

When calculating the gain, you can deduct costs such as legal and agent fees, and if the property was held for more than 2 years you can apply inflation relief. 50% of the resulting gain is added to your other income in the tax year and taxed at scale rates of tax (13.25% to 48%, plus solidarity tax).

Despite the potential for high taxation, if the property sold was your main home, there are two reliefs you can take advantage of to reduce or eliminate your tax bill:

• Reinvest the net sale proceeds into another main home in Portugal, or EU/EEA;
• Reinvest the net sale proceeds in an approved long-term savings plan or pension; or
• Use a combination of the above 2 options. This is useful if you wish to downsize.

Any portion of the sale proceeds not reinvested will be taxed.

In order to qualify for the reliefs there are certain conditions that must be met, such as timescales and reporting to adhere to.

Reinvestment into long-term savings or a pension
The above is all well and good if you want to buy a new property valued at the same price as the property you sold, but what if you do not?

The Portuguese government introduced a relatively new relief allowing you to reinvest the proceeds, or a part of the proceeds, in a long-term savings plan or pension, rather than another property.

Again, there are certain rules in order to qualify, but this can be a particularly advantageous option for those wishing to downsize and therefore can use a combination of the reliefs, or move outside of the EU/EEA e.g. back to the UK.

Again, in order to qualify there are conditions and rules that must be met, the most important being that the reinvestment is done within 6 months of sale.

Whether a pension or a long-term savings plan is right for you will depend on your personal circumstances and the structure must qualify in order to obtain the tax relief, so it is important to take advice.

Selling a property in Portugal that is not a main home: residents and non-residents
The tax rules are the same for Portuguese tax residents (even with Non-Habitual Residency (NHR), and non-residents.

If the property sold was purchased before 1st January 1989, no capital gains tax applies.
In all other cases, 50% of the gain is taxable at scale rates of tax with no option for the main residence reliefs described above. Do note if your property has an AL licence, or recently had one, the tax rules are different.

Selling a property overseas as a Portuguese tax resident
For those with NHR, there is no tax due in Portugal during the NHR period, so this is good opportunity to sell property. Outside of NHR and for normal residents, tax is due on 50% of the gain since purchase at scale rates in Portugal. This is the case even if the property was your main home at some point in the past e.g. you sell your property in the UK that was your main home before you moved to Portugal.

Tax will also be due in the country the property is located, but if there is a Double Tax Agreement with Portugal you will not pay tax twice. You will receive a credit for the tax paid in the country the property is located to offset against the tax due in Portugal.

With over 35 years’ experience, Debrah Broadfield and Mark Quinn are Chartered Financial Planners and Tax Advisers specialising in cross-border advice for expatriates. Contact us at: +351 289 355 316 or portugal@spectrum-ifa.com.