When buying or selling property, it’s essential to understand the tax implications early. Whether you’re a Portuguese tax resident selling property or a non-resident owner of Portuguese real estate, you’re subject to Portugal’s capital gains tax regime. Since January 2023, both residents and non-residents receive the same tax treatment.

When you sell property, only 50% of your gain is taxable in Portugal. The remaining half is tax-free. Inflation relief does apply if you’ve owned the property for more than two years, and properties acquired before 1989 are completely exempt.

Your taxable gains are combined with other annual income and taxed progressively. For example, the 2024 tax scale ranges from 13.25% on income up to €7,703 to 48% for income exceeding €81,199.

If you have the original non-habitual residence (NHR) status, you might avoid Portuguese Capital Gains Tax on properties outside Portugal. This includes properties in the UK. If you’re planning to sell in the foreseeable future, it may be beneficial to consider selling foreign properties during your NHR term.

Two primary reliefs are available and can significantly reduce your tax obligations:

• Reinvesting in a new main home (rollover relief).
• Reinvesting in a long-term savings plan or pension (for retirees or individuals aged 65+).

Reinvestment in a New Main Home: When proceeds from selling your main residence fund a new home within the EU or EEA, the gain is exempt from Portuguese Capital Gains Tax. Although, conditions still apply, including complete reinvestment of the proceeds (minus allowable deductions like mortgage debts), declaration of intent within the sale year, and adherence to specific purchase and move-in timelines.

Long-term Savings Plan or Pension Reinvestment: Individuals aged 65+ or retirees selling their main home may also reinvest the proceeds or part of the proceeds into qualifying insurance contracts or pensions. It’s very important to note this needs to be done within six months of the sale to gain exemption. Crucially, this relief can be combined with the rollover relief, ideal if downsizing to a smaller, cheaper home.

This strategy is supported by Article 10 of the Portuguese Personal Income Tax Code, which allows Capital Gains Tax to be deferred when the proceeds from selling a primary residence are reinvested into a qualifying life assurance policy—provided certain conditions are met. These policies, known as Portuguese Compliant Investment Bonds, come with additional tax advantages beyond simply reducing property related capital gains. They offer investment flexibility, allowing you to reinvest part, or all. of your proceeds in a way that not only defers immediate tax obligations but also provides a long-term income stream. When held for a qualifying period, they can further reduce your ongoing tax liability by up to 60%.

Ron (70) and Liz (64), who retired to the Algarve, faced significant potential Capital Gains Tax from selling their €3.5 million villa. They downsized, buying a €1 million home and invested €2.5 million into a Portuguese Complaint Bond, successfully meeting all exemption conditions:

• One spouse was over 65 at the sale time.
• Investment made within six months of the sale.
• Policy provides regular payments for at least 10 years.
• Annual withdrawals capped at 7.5% of the invested sum.

Their strategic reinvestment allowed Ron and Liz to:

• Defer Capital Gains Tax entirely on €2.5 million.
• Receive annual, tax-efficient income of €125,000 (5% of their invested amount).
• Maintain financial flexibility, with the option of moving abroad without penalties.

Portuguese-compliant bonds are incredibly beneficial as they:

• Defer immediate tax obligations on property sale gains.
• Offer predictable, long-term retirement income.
• Provide flexibility to adjust to future personal or geographical changes.

For further insights into these structures, I’ve done a full breakdown guide for you: Portuguese Compliant Bonds.

For further investment strategies as an expat in Portugal, visit our detailed breakdown: Investing as an Expat in Portugal.

Selling and downsizing property in Portugal doesn’t have to lead to a significant tax burden. With strategic planning and professional advice, using methods like Portuguese-compliant bonds, you can effectively manage your tax obligations and secure financial peace of mind. Everybody’s financial situation is unique, and determining whether Portuguese Compliant Bonds suit your needs requires careful consideration. These financial products require regulated financial advice to assess their suitability. If you would like to explore if this strategy is appropriate for you, please reach out using the message box provided below.

Disclaimer: While care has been taken to ensure the information in this article is accurate at the time of publication, laws and regulations may change. This content should not be relied upon as a substitute for personalised professional advice. Always seek guidance based on your specific circumstances.