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Employment Law
When you sell a house for a higher price than the acquisition value, you may generate a capital gain subject to tax. As a general rule, in Portugal, real estate capital gains are taxed under Personal Income Tax (IRS) on 50% of the profit, and that amount is addedto the taxpayer’s other annual income. Therefore, the final tax burden depends on the applicable IRS tax bracket — there is no fixed tax rate.
However, did you know that Portuguese law provides ways to reduce or even eliminatecapital gains taxation, particularly when the proceeds are reinvested?
When can you benefit from an exemption?
If the property sold is the taxpayer’s primary residence (habitual and permanent home), the taxpayer may benefit from a full or partial exemption if the sale proceeds are reinvested — namely through the purchase of another primary residence, within the legally established deadlines.
For taxpayers who are 65 years old or over, or who are already retired, there is an additional relevant option: reinvesting the capital gains in financial products intended to supplement retirement income.
Individuals who sell their primary residence under these conditions may reinvest the capital gains, within 6 months from the date of sale, in PPR (Retirement Savings Plans) or other life insurance-based financial contracts, open pension funds, contributions to the Public Capitalisation Scheme, Pan-European Personal Pension Products (PEPP).
Reinvestment may allow a full or partial exemption, depending on the amount effectively reinvested.
Important requirements for PPR and pension funds
Please note that when reinvestment is made through a PPR or an open pension fund, essential legal requirements apply: a minimum period of 10 years and a maximum annual withdrawal limit of 7.5%.
In other words, the annual amount received cannot exceed 7.5% of the initial investment. If this limit is exceeded, the taxpayer may lose the right to the exemption.
The reinvestment regime available to retirees and taxpayers aged 65 or over can be aneffective solution to reduce or eliminate taxation on capital gains arising from the sale of a primary residence. However, it involves strict deadlines, limits and formal requirements that must be complied with — and a mistake may result in the loss of the benefit.
VPA has a team available to offer assistance at every stage of the process, ensuring fulllegal compliance.
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