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Tax implications when buying or selling property in Portugal
Capital gains, property taxes, and strategies to reduce tax liability.
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If you're considering buying or selling property in Portugal, it's essential to understand the tax implications involved. Whether you're investing directly or through a corporate structure, the right knowledge and professional guidance can save you time, stress, and money.
Table of Content
Buying a property in Portugal – tax implications
Invest wisely and seek tailored advice
Selling your residence in Portugal
Strategies to reduce or avoid capital gains tax
Buying a property in Portugal – tax implications
I. Direct investment vs. corporate structure
Direct investment
This approach offers simplicity and potential exemption from capital gains tax if the proceeds are reinvested into another property used for the same purpose.Corporate structure
Using a corporate entity can be more suitable for entrepreneurial activities such as short-term rentals (e.g. Airbnb). However, using entities registered in tax havens should be approached with caution, as they may trigger additional scrutiny or tax penalties.
II. Acquisition and holding taxes
Real Estate Transfer Tax (RETT) and stamp duty
Together, these total approximately 6.8% of the property's purchase price or Tax Registered Value (TRV). For properties valued over €1 million, this can rise to 8.3%.Notarial and registration fees
Additional costs include fees for the notary and registration of the deed, which can vary depending on the value and location of the property.
III. Annual property tax
Property owners must pay Municipal Property Tax (IMI), which is levied annually on the TRV.
The rate varies between municipalities but generally ranges up to 0.45%.
Invest wisely and seek tailored advice
It's important to consider your investment goals, residency status, and personal circumstances. Seeking professional advice before making a purchase is essential, as Portuguese tax laws can be complex and subject to change.
Selling your residence in Portugal
I. Capital gains tax for residents
Since 2021, Portuguese residents pay tax on only 50% of the capital gains realised from selling a property.
The same applies to inherited properties, where only 50% of the gain is subject to tax.
This taxable amount is added to the individual's overall income to determine the IRS (personal income tax) rate.
II. Capital gains tax for European Union residents
EU residents also pay tax on 50% of their capital gains, based on marginal tax rates between 14.5% and 48%.
A solidarity tax of 5% may also apply.
Income earned abroad is considered when calculating the final tax rate.
III. Capital gains tax for non-European Union residents
Non-EU residents (including UK citizens no longer residing in Portugal) are subject to a flat capital gains tax rate of 28% on the full gain, with no 50% exemption.
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Strategies to reduce or avoid capital gains tax
Reinvestment
You can reinvest the proceeds into another permanent residence to benefit from exemption. The reinvestment must occur within 36 months after or 24 months before the sale.
Historic property ownership
Properties acquired before 1989 are fully exempt from capital gains tax.
Retirement-related exemptions
Individuals aged 65 or over, or retired, can reinvest the capital gain into specific financial products (such as life insurance or pension funds) within six months of the sale to be exempt from taxation.
Tax planning is a critical part of any property transaction. Whether you’re buying a second home, investing in rental property, or preparing to sell your main residence, it pays to be informed. Always consult a qualified professional to ensure that you’re making tax-efficient decisions in line with the latest Portuguese regulations.
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