Portugal presents as one of the most sought-after destinations in the world. It is a beautiful European country with desirable coastlines and out-of-this-world landscapes. As an expat selling your property in Portugal, you must know about Portuguese tax regulations. There are multiple circumstances where capital gains taxes in Portugal on real estate sales can be partially or wholly exempt. These exemptions hold for tax residents on the proviso that specific requirements are met. This is a must-read guide if selling your property in Portugal and investing in the proceeds in a Qnups or Portuguese compliant bond.
For example, Portugal has two residence exemptions – a primary residence exemption and a partial exemption on reinvestment. If you own the property outright, and it is your primary residence as a Portuguese taxpayer (over the last 24 months), and proceeds from the sale are reinvested in the acquisition, construction, maintenance, repair, or any other primary residence in the country (or in the EU) within 36 months of the sale, or in two years before the sale, you may be exempt from capital gains in Portugal. The devil is in the details. The rules mentioned above hold for primary residence exemptions in Portugal.
There is, of course, a partial exemption available when residents in Portugal sell their primary real estate holdings and purchase an additional property. In this case, real estate owners are exempt from capital gains taxes. Of course, if the new property costs less than the sold property, the tax will be applied to 50% of the difference in the price. While capital gains exemption for expats selling property in Portugal appears to be a complex minefield, certified financial advisors can simplify the process. This guide presents as a first step in that direction.
Age Matters – There Are Tax Exemptions for People Aged 65+
Portugal residents and retirees (65+ years of age) can invest profits from property sales of their primary residence in a pension fund or a specified type of insurance company. This protects the funds against capital gains taxes. The caveat is that this must be done within six months after the sale is finalized.
Generally, Portugal tax has a flat rate of 28% on capital gains. However, capital gains also exist in non-real estate sales, such as when selling shares in a company. Regarding non-residents in Portugal, real estate capital gains must also be considered. In this case, 50% of capital gains on real estate are taxable. There are marginal tax rates that start at 13.25% and go as high as 48% as of 2024.
Navigating Property Taxes and Wealth Levies in Portugal
By Q1 2023, the tax authorities in Portugal determined that the average cost of housing was €2,481 per square meter. Regions outside of Lisbon have experienced significant growth, particularly Braga and Santarem. Real estate transactions have several taxes levied on properties, notably annual property tax and property transfer tax.
Other considerations include stamp duty. If your property is valued at €600,000 +, a wealth tax may be incurred. The name of the Portuguese tax is ‘Adicional Imposto Municipal sobre Imóveis’, otherwise known as AIMI. It ranges from 0.7% up to 1%. If you have a legal entity, such as a corporation, the tax rate is 0.4%.
If a property is valued at €1 million +, there is a flat tax rate of 1% levied on individuals and corporations. If spouses file a joint tax declaration, the wealth tax on the property only applies if the value is €1.2 million. Recall the importance of wealth tax rates in Portugal; they apply to individuals and legal entities such as incorporated companies.
Portugal tax authorities abolished the inheritance tax in 2004. However, if real estate is inherited, the Portuguese resident must pay a stamp duty of 0.8%. Care and consideration must be factored into this equation. If real estate isn’t inherited by grandchildren, parents, children, or a spouse, the stamp duty may be as high as 10%.
In other words, it should be a relative to avoid the 10% tax. In Portugal, there is no gift tax. But it works similarly to inheritances. Prior to a property being transferred as a gift, there is a stamp duty that ranges from 0.8% up to 10.8%. If the property owner does not meet specific requirements, such as having a relationship to the prior owner, the gift tax applies.
But there are some silver linings in the clouds. If your property was purchased or acquired before 1989 in Portugal or elsewhere in the EU, no capital gains tax is applicable. Remember, just 50% of capital gains are taxable in Portugal. The other 50% remains tax-free. Similarly, your gains are treated as income and combined with other qualifying income to determine your obligation. In 2024, that figure started at 13.25% for any income up to €7703.
It goes as high as 48% for income greater than €81,199. Anyone not habitually resident in Portugal, a.k.a. NHR status, may not be required to pay capital gains taxes when selling property outside Portugal. This is true if the gain is taxable in a source country under a double taxation policy. For example, if you sell your property in the UK, you won’t have to pay Portuguese tax on capital gains.
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