Tax implications when buying or selling property in Portugal

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.

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.