DISCLAIMER: This post is intended as general information and as a guideline. We are not tax lawyers or accountants, and we highly recommend consulting a tax specialist before making any decision regarding capital gains.
The recent Mais Habitação housing law has introduced a new measure allowing for exceptions in capital gains tax when selling a secondary residence (EDIT: this measure was applicable only until the end of 2024). Existing laws already regulate for capital gains tax exemption in certain other property sales situations, and additional or higher capital gains tax in others. As such, the objective of this post is to outline these different situations so our readers can make better decisions when selling property, both home and abroad.
Capital gains, or mais-valias in Portuguese, correspond to the profit obtained from the sale of a property, and are defined in the IRS Code (n.º 1 do artigo 10.º do Código do IRS). The gain is the difference between the price at which the property was sold and the price at which it was purchased. This difference can be positive and represent capital gain or, much less frequently, negative, representing a negative gain, called menos-valia in Portuguese. In this post we will deal exclusively with the much more common case when there is a positive gain.
Firstly, let’s look at how the capital gain is calculated. The capital gain is the difference between the sale price minus the purchase price multiplied by the monetary inflation coefficient (last published in the annex of ordinance Portaria n.º 457/2026/1, de 15 de outubro), minus any deductibles (a general definition of such costs is indicated in Artigo 51º of the IRS Code).
Possible deductible costs are:
– Renovation work done in the last 12 years to improve the condition of the property, as long as there are official invoices for the work with the owner’s name, NIF, and the address of the property.
– Estate agent fees
– The cost of the energy certificate, which is obligatory to sell most properties (rustic land and ruins are exempt)
– Property transfer tax (IMT, or Imposto Municipal sobre Transmissão Onerosa de Imóveis)
– Stamp duty (IS, or Imposto de Selo)
– Notary costs, including costs of the deeds and registration
Apart from the general definition in Article 51 of the IRS Code, mentioned above, there is no definitive list of deductible costs, so any final decision will be taken based on accepted doctrine and court case jurisprudence. As an example, there seems to be general agreement that installation costs of air-conditioning or solar panel units may be deducted, but not the cost of the equipment itself, since this is movable and could be uninstalled to use elsewhere.
So, let’s now take a look at a few different situations when capital gains on property sales are obtained:
1. SALE OF A PRIMARY RESIDENCE
This is perhaps the most common case, when an owner sells the house they and their family are currently living in, and some or all of the gain may be exempt from tax.
Note, however, that the law (Decreto-Lei n.º 57/2024, de 10 de setembro), determines that to be considered a person’s primary residence, their fiscal address has to be established at the property for 1 year (2 years if sold before the date of this law, 10th September 2024).
Capital gains tax in the case of a primary residence, is the tax charged on 50% of the net gain calculated after considering the deductible costs specified above. The tax rate is determined taking into account worldwide income using the progressive tax brackets, which have a range of 12.5% to 48% for 2026.
Full exemption for this tax is possible when investing the full amount of the sale price minus payment of any outstanding mortgage capital in a new primary residence in Portugal or any other European union country. This reinvestment must be done in the 24 months before the sale of the property, or the 36 months after.
Additionally, the Mais Habitação law introduced a new condition: the seller may not have benefited from the exemption of capital gains tax in the year of the sale, or in any of the three previous years.
Lastly, if the full amount from the sale of a primary residence is not reinvested, the exemption will apply proportionally to the amount reinvested:
– take the percentage of the full sale amount that was NOT reinvested (e.g. the sale amount is €300,000 and only €200,000 was reinvested, meaning €100,000 was NOT invested, or 33%)
– multiply 50% of the net gain from the sale by the percentage above (33% in the example)
– the result is the taxable amount, and will be added to all other worldwide income to be taxed at the progressive tax rates. So, continuing the same example, if the property was bought for €175,000 and sold for €300,000, the taxable amount is: 50% of 33% of €125,000 = €20,833.
Note that the taxable amount means that the IRS progressive tax rate will be applied to €20,833 to obtain the final tax to be paid.
2. SALE OF A SECONDARY RESIDENCE
This may apply to either residents or non-residents, and since 1st January 2023, when the 2023 State Budget came into effect, the taxation rules are exactly the same for both: the tax rate is indicated by the progressive IRS tax brackets and is determined by worldwide income (see above). The capital gains are calculated as before and the progressive tax is applied to 50% of the net gain.
The Mais Habitação law (Lei 56/2023 de 6 de outubro) implemented another change for this situation, but which was valid only until the end of 2024. It was possible to be exempt from capital gains tax on the sale of secondary residences (or land intended for construction) if the gain was reinvested to pay the mortgage on the existing primary residence of the owner or their descendants (children, grandchildren, great-grandchildren, etc) in the 3 months following the sale. Unfortunately, this exemption possibility only applied to properties sold from 2022 to 2024, and also it did not apply when the secondary residence is also registered as an Alojamento Local.
3. SALE OF AN INHERITED PROPERTY
The only difference between this case and the first two mentioned above, is that there is no purchase price to use for the gains calculation. So, the number used is the tax value, called the Valor Patrimonial Tributário, or VPT, which can be found on the caderneta predial document. The VPT value at the time of the inheritance should be used. Then, the same conditions specified in the first two cases above apply, depending on whether the property is the seller’s primary or secondary residence.
4. SALE OF A PROPERTY REGISTERED AS AL (ALOJAMENTO LOCAL)
If a property is registered as an AL, and the AL registration title-holder is also the property owner, then tax (calculated as before, according to the progressive IRS tax brackets) for residents, or 25% fixed rate for non-residents) is levied on 95% of the net gain, and not the 50% used in the previous cases, and the deductibles mentioned above don’t apply.
If the owner is NOT the AL registration holder (for example they may have rented to a management company, who registered the AL in the company name), then the normal 50% coefficient applies.
Lastly, if the AL registration is cancelled, and the owner waits at least 3 years before selling, the higher tax no longer applies, and the capital gains are taxed according to the normal rules for a primary or secondary residence.
5. SALE OF AN OVERSEAS PROPERTY
If a property owner is fiscally resident in Portugal, and sells a property overseas, then careful consideration has to be given to the rules and regulations governing which country taxes the gain and how.
In general, all tax treaties signed by Portugal and also Article 13(1) of the OECD Model Tax Convention (in cases where a tax treaty is not in place) allow the country where the property is located to tax any gains on property sold.
If the owner has the NHR tax regime in Portugal, then the gain is exempt from tax here. If not, then the specific tax treaty should be consulted, but in most cases Portugal will tax the difference if the taxes in the country where the property is located are less than taxes here.
Also, real estate located in a blacklisted country with no tax treaty with Portugal will almost certainly be taxed here.
6. MISCELLANEOUS
Once again, we thoroughly recommend that a tax specialist is consulted before selling property in the cases indicated in this post.