Sooner or later, the moment will come when you decide to sell real estate in Portugal. One key aspect not to be overlooked is the capital gains tax arising from the sale. As a general rule, 50% of the realised capital gain is taxable. This principle applies to both tax residents and non-residents — including owners of a second or holiday home.
This article provides a concise and clear overview of the ways in which capital gains tax (mais-valias) on the sale of real estate in Portugal can be reduced or even completely avoided, taking into account the most recent legislative changes.
The author has prepared this article with the greatest possible care. Nevertheless, no rights may be derived from its contents.
The 7 main options
- Reinvesting in an owner-occupied permanent home (main residence)
- This is the most commonly used exemption.
- After repaying any outstanding mortgage on the sold property, the entire net sale proceeds must be reinvested in:
- a new main residence,
- land for the construction of an owner-occupied home, or
- renovations or extensions to another main residence.
- The reinvestment must take place within the European Union.
- Reinvestment may occur up to 24 months before and up to 36 months after the sale.
- In the case of partial reinvestment, only the corresponding portion of the capital gain is exempt.
- The sold property must have been your main residence for at least 12 months.
- Aged 65 or older, or retired: investing in financial products
- An alternative (or supplement) to reinvesting in a property (residents only).
- Within 6 months, the proceeds may be invested in, for example:
- life insurance policies,
- pension funds,
- PPR / PEPP retirement savings products,
- public capitalisation schemes (Certificados de Reforma do Estado).
- These products must provide a periodic income for at least 10 years.
- This option can be combined with reinvestment in a new main residence.
- Mortgage repayment (sales up to the end of 2024 only)
- A temporary measure under which the sale of a non-primary residence (second or holiday home) could be tax-exempt if the proceeds were used to repay a mortgage on the seller’s main residence in Portugal (or that of children or grandchildren).
- Applicable to sales between 2022 and 2024.
- This scheme no longer applies to sales from 1 January 2025 onwards.
- Deducting costs and renovation expenses
- Purchase and sale costs may be deducted (IMT, stamp duty, notary and registry fees, estate agent commissions, energy certificate).
- Value-enhancing renovations (not maintenance costs) carried out in the last 12 years may also be deducted, provided they are supported by invoices.
→ This can significantly reduce or even eliminate the taxable gain.
- Correctly declaring a loss (menos-valia)
- If the property is sold at a loss, no tax is payable, but the sale must still be declared.
- Losses may:
- offset gains realised in the same tax year, or
- be carried forward for up to 5 years to offset future capital gains.
- Sale to the public authorities
- Full exemption applies when selling to the State, a municipality, or public housing entities.
- This exemption does not apply if:
- the seller’s tax residence is in a tax haven, or
- the sale occurs through the exercise of a right of pre-emption.
- Other important exemptions
- Properties acquired before 1 January 1989 and building land acquired before 9 June 1965 are exempt from capital gains tax, but must still be declared.
Conclusion
With proper planning — such as reinvestment, careful documentation of costs, and correct reporting — capital gains tax in Portugal can be significantly reduced or even fully avoided. Thorough documentation and accurate IRS reporting are essential.