Before putting your property up for sale, it is always useful to consult an accountant or lawyer to understand how the capital gain from the sale will be calculated. As a real estate agency, we are not qualified to answer tax questions, but we would like to share some general information in this article.

After the sale of your property, the difference between the price you bought it for and the price you sold it for will be calculated. The price you bought the property for will be assigned a depreciation coefficient, and this coefficient is published annually by the government. However, if less than 24 months have elapsed between the time of purchase and the time of sale, no coefficient is attributed.

If the difference is positive, a capital gain is calculated, that is, the gain obtained from the sale of the property.

The calculation of capital gains does not apply to properties built or purchased before 1st January 1989, although there are two exceptions here:

1 – This exemption only applies to natural persons.

2 – The exemption does not apply if works or alterations requiring a licence have been carried out subsequently.

When calculating capital gains, the expenses you have had with the property, such as renovations, painting, etc., can be considered. These expenses are considered if they were incurred in the 12 years prior to the sale; all expenses must be supported by an invoice/receipt.

Expenses resulting from the sale process itself are also considered, such as the real estate commission or the issuing of the energy certificate. However, as a general rule, lawyers’ fees are not considered.

The capital gain is included in the annual income and for tax residents in Portugal this means that taxes are calculated on 50% of the profit made from the sale of the property. For non-habitual residents, 100% of the profit obtained is considered and a flat rate of 28% is applied. However, even non-habitual residents – provided they are resident in another country of the European Union – may choose to declare their global income and thus be taxed only on the 50% of the profit obtained.

Here too there is an important exception that should be mentioned: The profit obtained from the sale of the property will not be subject to tax, if in the 36 months following the sale this profit is reinvested in the purchase of another property for own habitation. This property may be in Portugal, in the European Union or in the European Economic Area, provided that there is an exchange of information in tax matters.

For any question regarding this topic, please do not hesitate to contact us.