You gain some, you lose some
If you own a property in Portugal you may have to pay capital gains tax when you sell it. You may have to pay tax in both Portugal and also your home country depending on your residence status. Whether or not you pay Portuguese capital gains tax will depend on whether you are resident, how you own the asset and whether it is your main home.
Residents in Portugal are liable to pay capital gains tax on worldwide property and investments acquired from January 1st, 1989 and onwards. Any gains on real estate are added to your other income for the year and taxed at the income tax scale rates, ranging from 14.5% to 48%. For residents only 50% of the gain on the sale of real estate is liable to tax and you can receive inflation relief after two years of ownership. There are also exemptions available.
If you reinvest the proceeds into another main home in Portugal – or anywhere in the EU/EEA that has a tax treaty with Portugal – you will not attract capital gains tax. To qualify, you must do this within 36 months after the sale (or 24 months before) and also live in the property within six months of the three-year deadline.
This exemption may no longer apply to UK properties once the UK leaves the EU.
An additional capital gains tax relief was introduced in 2019 that can particularly benefit retirees. If you are either retired or aged over 65, gains are now exempt if you reinvest proceeds from your main home in an eligible insurance contract or pension fund within six months of sale.
For non-Portuguese residents, the full gain from the sale of a property in Portugal is taxable at a flat 28% rate.
If you own Portuguese property through a non-resident corporate structure – such as a company or trust – gains have only recently become taxable in Portugal. Since January 2018, where 50% or more of a non-resident company’s value comprises of Portuguese real estate, the gain on the transfer of shares attracts 25% corporation tax (35% if from a blacklisted jurisdiction).
This only applies where the double tax treaty between Portugal and the company’s country of incorporation gives Portugal taxation rights, for example, US-owned companies. For those who are not affected, such as companies based in the UK or Luxembourg, corporation tax is instead payable in those countries.
With careful planning, it is possible to significantly reduce your tax liability. For example, certain types of life insurance policies can offer significant tax benefits in Portugal, so speak to a specialist wealth manager about which ones may help you and how.
An adviser with cross-border experience can help you find tax-efficient, compliant ways of managing your assets so that you do not pay more tax than you need to. We can put you in touch with our colleagues at various companies, just let us know.