Capital Gains Tax on Property in Portugal. How capital gains tax applies to property sales

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Selling property in Portugal almost inevitably triggers tax consequences, with capital gains tax standing at the centre of the transaction. In 2025, the core rules remain unchanged, yet their practical application continues to depend heavily on tax residency status, the use of the property, and the seller’s reinvestment strategy. For both private homeowners and investors, understanding how capital gains are calculated is essential to effective transaction planning.

The taxation framework is built around determining whether the profit from a sale is taxable and to what extent. This assessment unfolds in several stages, starting with the seller’s tax status and ending with the calculation of the final taxable amount.

Residents versus non-residents

Portuguese tax residents benefit from partial taxation of capital gains. Only 50 % of the calculated gain is added to the individual’s annual taxable income and taxed at progressive IRS rates. In 2025, these marginal rates range from 14.5 % to 48 %, with potential solidarity surcharges applying at higher income levels. The remaining half of the gain is effectively exempt, significantly reducing the overall tax burden for residents.

Non-residents are subject to a different regime. In most cases, the full capital gain is taxed at a flat rate of 28 %. This typically applies to sellers resident in EU or EEA countries that exchange tax information with Portugal. If the seller is resident in a jurisdiction classified as a tax haven, the applicable rate may increase, commonly to 35 %. Double Taxation Agreements may further influence how and where the gain is ultimately taxed.

How the taxable gain is calculated

The taxable capital gain is determined by subtracting the inflation-adjusted acquisition cost and allowable expenses from the sale price recorded in the notarial deed. Where the property has been held for more than 24 months, the original purchase price may be revalued using official inflation coefficients published annually by the Portuguese authorities, helping to offset the impact of inflation over time.

Eligible deductions include properly documented costs associated with both the acquisition and sale of the property. These may encompass property transfer tax and stamp duty paid on purchase, real estate agency commissions on sale, and qualifying capital improvements carried out within the twelve years preceding the transaction. Only substantial improvements that increase the property’s value are considered, rather than routine maintenance.

Main residence reinvestment relief

One of the most significant reliefs is available to Portuguese tax residents who sell their main habitual residence. Capital gains may be exempt if the sale proceeds are reinvested in another main residence located in Portugal or in another EU or EEA country with a tax information exchange agreement. Reinvestment can take place from 24 months before the sale up to 36 months afterwards, provided the intention to reinvest is declared in the tax return for the year of sale.

Where only part of the proceeds is reinvested, the exemption applies proportionally, ensuring that only the non-reinvested portion of the gain remains taxable.

Special regime for retirees and older residents

Additional relief is available for tax residents aged 65 or over, or those officially retired. In such cases, capital gains from the sale of a main residence may be exempt if the proceeds are reinvested within six months into qualifying insurance products or pension-related financial instruments. This option offers flexibility for older homeowners who are downsizing or changing their living arrangements without purchasing another property.

Reporting obligations and compliance

Capital gains from property sales must be reported in the annual Portuguese income tax return using IRS Modelo 3 and the relevant annex. Filing typically takes place between April and June of the year following the sale, after which the tax authorities assess the liability and issue payment instructions.

As reported by International Investment experts, Portugal’s capital gains tax regime remains predictable and manageable when approached strategically. Accurate calculations, thorough documentation, and timely use of available reliefs are key to minimising tax exposure while remaining fully compliant with Portuguese tax law.