Capital Gains Tax!

  
If you decide to sell your second home/holiday home in Portugal, you will need to pay capital gains tax.

Permanent residents may benefit from additional exemptions if they reinvest in another property in Portugal. But each case is a case.

The Tax Authorities require payment of IRS on capital gains generated by the sale of a second home if invested in a permanent home for the person's residence outside Portugal, according to binding information from the Tax Authority (AT), published on the Finance website.

If the property were in Portugal, it could benefit from the exemption provided for in the "Mais Moradia package", according to a report by ECO.

The law does not mention the location of the property, but the Tax Authorities understand that the benefit can only be enjoyed if the house is located in Portugal.  “This is the only conclusion to be drawn from a law whose political purpose was to intervene in resolving existing challenges in the Portuguese housing market, which is solely and exclusively concerned with the distortions that exist in it, the way in which these particularities affect Portuguese families and the finding of solutions that aim to alleviate the problems arising therefrom”, concludes the AT (tax Authority).

The "Mais Habitação" law, of October 6, 2023, authored by the Socialist Government with an absolute majority, led by António Costa, approved measures with “the objective of guaranteeing more housing” that provide, in particular, for the exclusion from IRS taxation of gains from the sale of second homes if applied to the repayment of capital owed on a housing loan intended for the taxpayer’s own and permanent home, his/her family or his/her descendants”, acknowledges the same document, sanctioned by the AT (Tax Authority).

The issue was raised by a taxpayer who intends to apply “the realisation value obtained from the sale of a secondary home to the repayment of a loan taken out for the acquisition of a descendant’s own and permanent home, a loan referring to a property located outside the national territory but within the European Economic Area”.

In fact, Law No. 56/2023 “established an exclusion from IRS taxation of gains from the onerous transfer of land for construction or residential properties that are not intended for the taxpayer’s own and permanent home or of their household, provided that the realization value is applied to the amortization of capital owed on a housing loan intended for the taxpayer’s own and permanent home, or that of his/her dependents, and provided that this occurs within three months, counting from the date of realization, or from the date of entry into force of the law, in the case of transfers made up to that date”, point out the tax administration services.

In the event that the sale of the second home occurred after the law came into force, only transfers up to December 31, 2024 may benefit from the exemption.

From the reading of the rule, the Tax Authorities consider that they are “faced with an exclusion from taxation that takes the form of a de facto tax benefit, that is, a rule of an exceptional and temporary nature, especially created to pursue extra-fiscal public interests, superior to those of taxation, which consist of assisting families with high costs for their own and permanent home, resulting from the sudden rise in interest rates”.

In addition, the AT understands that “The aim of this regulation was to create a tax-based aid measure to help families who own their own permanent home in Portugal reduce their expenses, which means that its applicability is restricted to cases where their own permanent home is located in Portuguese territory and the loan was taken out there”.

“This is the only conclusion to be drawn from a law whose political purpose was to intervene in resolving challenges in the Portuguese housing market, which is solely and exclusively concerned with the distortions that exist therein, the way in which these particularities affect Portuguese families and the finding of solutions that aim to alleviate the problems arising therefrom”, according to the same binding information.

Finally, the AT adds that, while the IRS Code expressly refers to the possibility of reinvesting in one’s own permanent home located in a Member State of the European Union or a Member State of the European Economic Area”, the law of the Mais Habitação package “does not mention it”. Therefore, the Tax Authorities consider that “the conviction that such a scenario — amortization of property located outside the national territory, is not within the scope of the legal provision of the aforementioned regime is reinforced”.

“In view of the above, it is concluded that the applicant cannot benefit from the exclusion from taxation if the realization value obtained from the sale of his/her secondary residence is applied to the amortization of a loan taken out for the purchase of a property that, although intended for the person’s own permanent residence, and of his descendant, is not located in national territory”, concludes the same document.

Copyrights by The Portugal News 

Importan Note: This article is for informational purposes and does not replace consulting the official legislation