How is capital gains tax calculated on property sales in Portugal?

What are capital gains?

Capital gains refer to the profit made from the sale of a property. It is calculated as the difference between the selling price and the original purchase price, minus certain allowable expenses. This profit is, in most cases, subject to IRS (Personal Income Tax).

Importantly, only 50% of the capital gain is subject to taxation. The actual tax payable will depend on your overall IRS tax bracket — meaning the higher your annual income, the higher your capital gains tax.

What factors are included in the calculation?

The capital gains tax calculation is based on the following elements:

• Selling price of the property (stated in the sales contract);

• Purchase price (the amount originally paid);

• Deductible expenses, such as real estate agent commissions, documented renovation costs, notary and registration fees;

• Monetary devaluation coefficient, applied to the purchase price to adjust for inflation since the acquisition.

This last factor — the coefficient of monetary correction — is published annually by the Tax Authority and ensures your purchase price is adjusted to today's values.

Practical example

Let’s say you bought a property in 2005 for €100,000 and sell it in 2024 for €250,000.

1. Updated purchase value (using a coefficient of 1.32): €132,000

2. Gross profit: €250,000 – €132,000 = €118,000

3. Deductible expenses (e.g. €10,000): €118,000 – €10,000 = €108,000

4. Taxable capital gain: 50% of €108,000 = €54,000

This amount is added to your annual IRS income and taxed according to your income bracket.

Are there exemptions?

Yes, under certain conditions, you may be exempt from capital gains tax:

1. Reinvestment in a new primary residence

If the property sold was your primary residence and you reinvest the proceeds in another primary residence — within 36 months — you may be fully or partially exempt from capital gains tax.

2. Property acquired before 1989

Properties purchased before 1 January 1989 are automatically exempt from capital gains tax, as this law was introduced from that date forward.

3. Sellers over 65 years of age

Taxpayers aged 65 or over who reinvest the sale amount in specific financial products (such as retirement savings plans or annuity insurance) may qualify for exemption, provided the rules and deadlines are met.

To assess your eligibility for exemption, consult an experienced real estate team who can guide you through the legal and financial steps of the sale.

How to declare capital gains on your tax return

You must declare the sale of your property on your annual IRS tax return, using Annex G (or Annex G1 for full exemption). You’ll need to provide:

• Sale price and date;

• Purchase price and date;

• Supporting documents for deductible expenses;

• Details of reinvestment (if applicable).

Errors or omissions in this declaration may result in losing your exemption, or trigger corrections and penalties from the Tax Authority.

The importance of planning before selling

Before selling, it’s essential to conduct a thorough real estate market study, analyse the potential tax impact, and gather all relevant documents. Many sellers leave this until too late, which can lead to unpleasant surprises.

With proper planning, you can:

• Estimate the net amount you’ll receive after taxes;

• Evaluate reinvestment opportunities for exemption;

• Prepare invoices and receipts to reduce taxable profit;

• Negotiate more confidently with buyers.

Why expert advice makes all the difference

Working with real estate consultants is key to understanding current legislation and creating a sale strategy suited to your personal financial situation.

These professionals can help you:

• Forecast the estimated tax after the sale;

• Determine the ideal timing for sale;

• Prepare your documents accurately;

• Identify legal opportunities for exemption.

At Engel & Völkers, sellers benefit from a complete, personalised approach combining market intelligence and fiscal expertise — so each transaction is handled with full confidence.

How do you know how much your property is worth?

Before you can calculate capital gains, you need to know how much your property is worth. An accurate valuation allows you to:

• Set a competitive asking price;

• Attract serious buyers;

• Plan your tax obligations based on real expectations.

Engel & Völkers offers free property valuations based on in-depth market analysis and your apartment’s specific characteristics — the perfect starting point for a confident and profitable sale.

What expenses can be deducted?

You can deduct the following from the sale price, provided you have valid documentation:

• Real estate agency commissions;

• Costs of the original purchase deed;

• Land registry fees;

• Energy certificate fees;

• Renovation expenses made within the last 12 years (with invoices paid by bank transfer or card).

These deductions directly reduce the amount of tax you owe — so be sure to gather all relevant receipts.

Recommendations for property sellers

1. Have your property valued early. A professional appraisal gives you a clear starting point.

2. Plan your tax in advance. Know the likely tax amount and consider legal exemptions.

3. Explore reinvestment options. This can eliminate or reduce your tax bill.

4. Organise your paperwork. Keep everything up to date and accessible.

5. Time your sale wisely. Local demand and economic trends affect pricing.

6. Work with a professional team. With Engel & Völkers, your sale is handled with expertise from start to finish.

Conclusion

Understanding how capital gains tax is calculated when selling a property in Portugal is essential for anyone looking to sell securely and profitably. While the rules can seem complex, with the right planning, you can minimise taxes and maximise your earnings.

If you’re planning to sell, don’t do it alone. Engel & Völkers offers expert consultants, a free valuation service, and access to a global network of qualified buyers.

Want to know how much your property is worth? Ready to sell your apartment? Get in touch with us today and turn your sale into a smooth, secure and financially rewarding experience.