Selling a holiday or main home has tax implications that may be considered before making any decisions. Check out MATLAW’s most recent editorial for Abode2 Luxury Property Magazine with highlights on taxation of property capital gains in Portugal
Did you know that when selling property in Portugal you may be subject to capital gains tax?
Whenever property is sold, capital gains tax may be payable, depending on a range of factors. If you have or plan to buy a second property in Portugal, you should be aware that the real estate capital gains taxation varies significantly depending on whether or not you are a fiscal resident in Portugal. Among non-residents, there are also differences between the taxation of residents in other EU Member States and the taxation of residents of third states, including the United Kingdom.
What is a capital gain and what’s the capital gains tax rate for a non-resident?
Capital gains is income that results from the difference (when positive) between the purchase price of the property and the value at which it is sold. For example, if you bought your house for €300,00 and sold it for €500,000, you have a capital gain of €200,000. It is this positive difference, after being monetarily updated and deduced of any tax-deductible expenses, that is subject to taxation. The tax rate on capital gains earned by non-residents in Portugal is currently 28%. However, non-residents from other EU Member States or the European Economic Area have the possibility to choose a tax regime which is similar to the one applicable to residents in Portugal.
How is the capital gain assessed and does the purchase price remain unchanged?
The price paid to buy a property in 2000, does not have the same monetary value today as it did then. Therefore, Portuguese law states that the acquisition values of real estate are revised through the application of monetary correction coefficients published annually by the Government.
Depending on the year in which the purchase of the property occurred, the result of the application of such coefficients usually results in an increase over the acquisition value, to be considered for the purposes of determining the capital gain generated from the sale of a property.
Can I deduct the expenses that I incurred to improve, buy and sell my property?
Yes, expenses directly related to the purchase, sale and improvement of the property can to be deducted. The law intends that only gains that truly result from the increase in the value of the property, and not mere apparent gains, are taxed. With regards to expenses related to the improvement of the property, these are related to the amount spent on improvement works, as long as they are duly documented
and have been incurred in the 12 years prior to the date of the sale. Expenses inherent to the acquisition and sale of the property are also deductible. As long as proven, expenses such as taxes paid when the property was purchased and commissions paid to real estate agents, if applicable, can be deducted.
Sale of a property assigned to the owner’s commercial activity
The taxation of capital gains resulting from the sale of a property which is assigned for the commercial activity of the owner, has a different treatment than the one described above. A common example, is the local lodging activity, which is widely practiced by national and foreign property owners who intend to make it profitable, totally or partially, by providing tourist accommodation services. The taxation of real estate capital gains resulting from the sale of a property used for a commercial activity is, as a rule,
taxed as an income of the same nature and therefore the above-mentioned rules will not be applicable. The matter of taxation over capital gains generated by the sale of a property located in Portugal that is owned by nonresidents is highly complex. Hence, it’s vitally important to seek qualified professional advice.
This information is not legal advice of concrete cases, nor should it be, under any circumstances, deemed as such.
Joana Neto Mestre | MATLAW