What are Capital Gains - (Imposto sobre Mais-Valias)
Capital gains are the profit that you generate when selling a property. But if you acquired the property before 1 January 1989, it is not liable for capital gains tax. CGT applies when selling any Portuguese property bought after 1988.
To calculate the taxable gain, you take the selling price, minus the acquisition costs, any costs incurred during the transfer of ownership, and also any property improvement costs that have incurred within twelve years of the sale.
If you live in Portugal and own Portuguese property or other assets, you may face capital gains tax in Portugal and the UK, depending on your Portugal residency status.
What has changed!
Until 2022 real estate capital gains obtained in Portugal by non-residents were taxed autonomously at the special IRS rate of 28%, except when residing in a Member State of the EU or the European Economic Area and opting to be taxed according to the progressive rates applicable to residents in Portugal from 14.5% to 48%, plus the additional solidarity rate for taxable income exceeding EUR 80,000 (applicable on the exceeding part).
However, while in the case of residents the amount subject to taxation corresponded to 50% of the net capital gain obtained, the same criterion was not adopted for non-residents whose capital gains were fully subject to taxation, in clear breach of European law as confirmed by the Portuguese tax courts, without clarifying, however, whether, even if considered at only 50%, they should continue to be taxed at 28% or be taxed according to the progressive IRS rates applicable to residents.
In the meantime, these rules have been amended by the State Budget laws for 2022 and 2023, imposing their compulsory aggregation as from 2023.
Following these law changes and as a result of the aforementioned case law, the Portuguese Tax Authority has clarified the tax framework of the real estate capital gains obtained by non-residents through Circular Letter no. 20255, of 14 April 2023, as follows:
-- Until 31/12/2022, net real estate capital gains are considered at only 50% of their value and taxed autonomously at the special rate of 28%;
-- As from 01/01/2023, real estate capital gains will have to be compulsorily aggregated (at 50% of their value) with the other income obtained by non-residents, and will be subject to the corresponding progressive rates of IRS.
For residents of Portugal, the gains are added to your other annual income and taxed at the standard IRS tax rates between 14.5% and 48% (see table below), but only 50% of the gain is taxable and if you have owned the property for two years, you are eligible for inflation relief.
Residents are subject to Portuguese capital gains tax on their worldwide real estate gains.
The taxable amount is treated as income. You add it to the other income you earn in the tax (calendar) year in which you sell the property, and are taxed at the scale rates of income tax. For 2023 income, the rates are:
| Total income for year |
Tax rate |
| €0 – €7,479 |
14.5% |
| €7,479 – €11,284 |
23% |
| €11,284 – €15,992 |
26.5% |
| €15,992 – €20,700 |
28.5% |
| €20,700 – €26,355 |
35% |
| €26,355 – €38,632 |
37% |
| €38,632 – €50,483 |
43.5% |
| €50,483 – €78,834 |
45% |
| Over €78,834 |
48% |
When you sell a property that has been your main home, you may escape capital gains tax completely depending on circumstances and what you do with the proceeds. There are two reliefs available (both can be claimed):
Main residence reliefs - The rollover rules
- Capital gain tax does not apply if a resident of Portugal is selling a primary residence / main Home and using the proceeds (net of any mortgage taken out to acquire it) to buy another residence/main home within Portugal or in another EU or European Economic Area (EEA) member state, which exchanges tax information with Portugal. This relief therefore no longer applies when selling your Portugal home to move back to the UK.
- You need to purchase your new residence within 36 months after selling the first one or 24 months before. You (or your immediate family) must then live in the property within six months of the end of the three-year limit. If you don’t meet these time limits, any tax payable as a result of the shortfall will become due – together with penalties and interest for late payment.
- Reinvestment in land on which the new main home is to be built also qualifies (within the above time limits). The building work must commence within six months of the end of the three-year limit and you must apply to register the property within two years after building works commences and move in within five years of completion.
- The property must be in your name, and not in a company. It’s advisable to have ‘history’ in it. E.g., being registered as your address with the local authority, utility companies and on tax returns.
Reinvestment in a long-term savings plan / pension
- If you are either retired or aged over 65, you can also receive an exemption if you reinvest gains in an eligible insurance contract or pension fund within six months of the sale.
- When reinvesting in a pension, you must receive a maximum annual payment of 7.5% of the value of the funds invested.
- You need to indicate your intention to invest the funds fully or partially in your tax return for the year concerned.
- Life assurance policies – where you can hold a wide range of investment assets within its tax-efficient structure
Therefore, if you are selling your main home and do not wish reinvest the entire proceeds into a new home (for example if you are buying a smaller, more manageable property), you can invest the unused balance in a life assurance policy and benefit from the exemption.
Capital gains tax on Portuguese property owned by non-residents
Under Portugal’s current law, if you are not a resident of Portugal and sell a property in Portugal, the entire gain is taxable.
- Non-resident individuals are taxed at 28%.
- Non-resident companies (If you own Portuguese property through a non-resident corporate structure – such as a company or trust) are subject to Portuguese corporation tax of 25%.
- Non-resident companies located (in a tax haven or a blacklisted jurisdiction), are taxable at 35%.
If you are resident elsewhere in the EU, or in an EEA state with a tax information treaty with Portugal, you may opt to be taxed as a Portugal resident instead. Note, however, that you will have to declare your worldwide income (see list below) in Portugal to calculate the marginal rate of tax that applies to the gain, so it only benefits those with very low income.
- Salaries and equivalents
- Pensions
- Freelancer or self-employed income
- Dividends
- Rental income
- Interests
- Capital gains (including crypto and financial portfolios)
Portugal capital gains tax for non-habitual residents (NHR)
Those with NHR status avoid liability for capital gains tax on certain foreign source gains, depending on which country has the taxing rights under the terms of the double tax treaty. Where the gain is taxable in the source country – such as with UK real estate – there is no liability in Portugal for non-habitual residents.
Gains are ‘exempt with progression’, however, so are still added to your annual taxable income to calculate your effective Portuguese tax rate. So, although not directly taxable, the gain could increase your overall tax bill.
*This article is provided for general information purposes only and is not intended to be, nor should it be construed as, legal or professional advice of any kind.
