Selling a property in Portugal is an opportunity to monetize your assets, but beware of real estate capital gains. They may entail the payment of IRS on the profit made between the purchase price and the sale price.
What are real estate capital gains?
Real estate capital gains correspond to the profit made on the sale of a property, calculated as the positive difference between the sale price and the price at which you bought the property, plus the costs associated with the purchase and valued by a monetary update coefficient (if 24 months have passed between the purchase and sale).
How capital gains are calculated.
You can deduct from the calculation of capital gains:
- The price at which you bought the property;
- Expenses associated with the purchase and sale, such as purchase taxes, deed, energy certificate, real estate brokerage, among others;
- Investments in improvements made in the last 12 years before the sale.
If the result of this calculation is:
- Negative: we are looking at a capital loss (loss) and there is no tax to pay. This loss can be used to offset gains from the sale of other properties in the following five years, subject to certain legal conditions;
- Positive: capital gains (profits) are taxed under Category G (property increases).
What has changed in recent years?
In 2024, some of the measures announced in previous years were consolidated and new measures were implemented. We highlight the main ones.
New financial products
Law no. 31/2024 updated the special regime for taxpayers over 65, including new savings instruments. Since then, in addition to traditional Retirement Savings Plans (PPR), Pan-European Individual Retirement Products (PEPP) have also been included in the range of financial investments eligible for reinvesting capital gains and obtaining exemption.
Reduction in the length of time you can own your own permanent home
In 2024, the government approved a reduction from 24 to 12 months in the minimum period of ownership of a permanent home for the purposes of the reinvestment exemption. In simple terms, this means that a homeowner no longer needs to have lived in the house they are selling for two years in order to benefit from the exclusion of capital gains when buying another house. All that is required now is that you have used the house as your main residence for at least 12 months prior to the sale.
This change, which is set to take effect retroactively from December 31, 2023, will allow families who bought a house a short time ago to sell it after a year in order to change homes, without any tax penalty.
For example, a family that bought a house in January 2024 could sell it in February 2025, after a year of residence, and not pay IRS on the capital gain if they put the money towards a new home.
Elimination of the three-year exemption limit
The rule that made it impossible to benefit from the reinvestment exemption more than once in the same three-year period has been repealed. Until then, once the exemption had been used, the owner was prevented from using it again in the following three years. As of 2024, families can now sell and reinvest successively.
Source: https://www.cgd.pt/
Photo source: https://www.santander.pt/