Are you contemplating selling your property in Portugal? Whether you’re a long-time resident, an expat considering a move, or an investor seeking opportunities, navigating the taxes of selling property in Portugal is extremely important for your finances. From capital gains tax to non-habitual resident status, we’ll walk you through the intricacies of this complex topic, making it easier for you to plan your next move.
Portugal boasts a vibrant real estate market fueled by its rich history, breathtaking landscapes, and warm, welcoming culture. However, like any real estate venture, selling property here involves its fair share of taxes. Fortunately, Portugal offers several tax benefits, which can help mitigate your financial obligations when selling property.
First, let’s dive into Portugal capital gains tax – a critical component you need to understand when selling property in this beautiful country.
When you sell a property at a higher price than what you paid for it, the profit you make is considered a ‘capital gain’. In Portugal, this gain is subject to capital gains tax. But don’t worry, the process isn’t as terrifying as it sounds.
As a resident, you’ll be pleased to know that only 50% of your gain is taxable. What’s more, if you’ve owned your property for more than two years, you may be eligible for inflation relief. And for properties acquired before 1989? You’re in luck – these aren’t subject to capital gains tax at all.
The taxable amount from your property sale is added to your other income for the year, which is then taxed based on the progressive income tax rates, which currently range from 14.5% (for income under €7,479) to 48% (for income over €78,834).
The Portuguese tax system offers several reliefs, or ‘rollover rules’, that can help you avoid or reduce capital gains tax. These reliefs come into play when you sell a property that has been considered your primary residence.
One relief involves reinvesting in a new main home. If you sell your primary residence in Portugal and reinvest the proceeds (net of any mortgage used to acquire it) into another primary residence, you could be exempt from capital gains tax.
This exemption isn’t automatic, though. You must declare the reinvestment amount on your tax return (IRS) for the year you sell the property. Also, the new property must be in the EU or a European Economic Area (EEA) country that shares tax information with Portugal.
When it comes to this exemption, timing is everything. You must purchase your new residence within 36 months after selling the first residence or 24 months before. Additionally, you should move into it within six months of the three-year limit to avoid any due taxes.
Ownership is equally important. The property must be registered in your name, and it’s advisable to have a clear record of it being your address with the local authority, utility companies, and on tax returns.
Understanding these regulations can seem overwhelming, but don’t fret! We at Pearls of Portugal are here to guide you in the process, making your property sale as smooth and tax-efficient as possible.
Another interesting exemption route is through reinvestment in a long-term savings plan or pension. This benefit can be a boon if you’re retiring or are over 65 years old.
Here’s how it works: After selling your property, you can reinvest the proceeds into a pension fund, state pension system, or insurance contract within six months. Similar to the property reinvestment route, you need to indicate your intention to invest the funds in your tax return for the relevant year.
There’s a catch, though – when reinvesting in a pension, you should receive a maximum annual payment of 7.5% of the value of the funds. And remember, the property sold needs to be in your name.
But what if you’ve sold your home to downsize and you have some funds left over after buying a smaller property? You can invest the balance in a life assurance policy and still enjoy the exemption.
If you’re a non-resident selling property, the tax rules differ slightly. As per current Portuguese law, non-residents are taxed on the entire gain from property sales in Portugal. The rate is set at 28% for individuals and 25% for companies. For companies located in tax havens, the rate increases to 35%.
However, if you reside in an EU or EEA state, you can choose to be taxed as a Portugal resident. This option is advantageous if you have a relatively low income.
Recent developments suggest that this law might be changing, given that the Portuguese Constitutional Court and European Court of Justice have deemed the different treatment of residents and non-residents discriminatory under EU law. While the Portuguese law has not been officially amended yet, reports indicate that the Portuguese tax authority is already treating residents and non-residents in the same way.
If you hold NHR status, you could avoid capital gains on certain foreign source gains, depending on the double tax treaty terms with your home country. This means if the gain is taxable in your home country – as is the case with UK real estate – you won’t be liable for tax in Portugal.
However, these gains are ‘exempt with progression’, meaning they’re added to your annual taxable income to calculate your effective Portuguese tax rate.
Remember, tax regulations are subject to change, so it is a good idea to seek local advisers to guide you through the labyrinth of the tax code. You needn’t navigate it alone!
At Pearls of Portugal, our team of real estate experts, with a wealth of experience assisting international clients, are here to guide you every step of the way. We have dedicated legal and financial departments to accurately determine your obligations, making the entire process transparent and stress-free.
Trust us to turn this complex journey into a smooth sail – connect with Pearls of Portugal today, and let us help you get the best deal for your property.
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