1. What is Capital gains?
Capital gains is a tax term that corresponds to the profit obtained by the seller on the sale of an asset, most typically real property. It is calculated by subtracting the sales value from the purchase price and charges.
Capital gains tax applies when selling any Portuguese property bought after 1988. The percentage of the charges will depend if the seller is or is not resident in Portugal.
For residents, gains are added to your other annual income and taxed on a scale between 14.5% and 48%, but only 50% of the gain is taxable and you receive inflation relief after two years of ownership.
For non-residents, 28% is payable on all capital gains.
For EU citizens, there is an option to be taxed as a resident instead, but anyone doing so must declare the worldwide income to calculate the applicable tax rate. Take care, as this may no be the most tax-efficient approach.
2. Important to know about capital gains tax Portugal
Residents do not face capital gains tax when selling a main home and using the proceeds to buy another home within Portugal or the EU/European Economic Area (EEA). Be careful, with the Brexit scenario, reinvestments in UK property will be excluded.
Refurbishments that provide added value to a property can also be deducted under "Expenses and charges", such as the installation of a heating system, as long as these improvements were carried out in the last 12 years.
These expenses must be documented as specified by the relevant legislation. This point is very important for people who want to apply for a Golden Visa buying a property over 30 years old.
This is because, the total amount of the investment includes renovation works of the property, which may be included as a charge to discount the gain on a future sale of the property.