Capital Gains Tax on Real Estate in Portugal (2025): What You Need to Know

Real Estate Capital Gains in 2025: What They Are and How to Minimize Their Impact

Thinking of selling a property in Portugal in 2025?

While it can bring in a nice profit, it may also come with a significant tax liability. In Portugal, profits from property sales—called capital gains—are taxed under IRS (personal income tax). Planning ahead is essential to avoid surprises.

 
What Are Capital Gains on Real Estate?

A capital gain is the profit you make when you sell a property for more than you paid for it.

Capital Gain = Sale Price – Adjusted Purchase Price – Eligible Costs
This gain is taxable unless specific exemptions apply.
 

Which Properties Are Taxed?

Capital gains tax applies only to properties purchased after 1989—the year Portugal's IRS Code took effect.

Exceptions:

Properties bought before 1989 are not taxed, unless they are plots for construction purchased after 1965.
 

How Much of the Gain Is Taxed?

For resident individuals, only 50% of the gain is typically subject to tax.
It’s then added to your other income for the year and taxed at the applicable IRS rate.
100% may be taxed if the property was acquired with non-refundable public funding.
 

How to Calculate Capital Gains

Here’s the formula:

Capital Gain = Sale Price – (Purchase Price × Inflation Coefficient) – Deductible Costs

Breakdown:

• Sale Price: Final price listed in the deed (not including furniture or extras).
• Purchase Price: What you originally paid, as per the deed.
  Inflation Coefficient: Adjusts the original price based on inflation (published annually).
• Deductible Costs:
  • Home improvement expenses (last 12 years, with invoices and paid by bank transfer or card)
  • Property taxes and notary fees from the purchase
  • Real estate agent commission
  • Energy performance certification
     

How to Reduce or Avoid Capital Gains Tax: Reinvestment

The most common way to reduce or eliminate this tax is by reinvesting the sale proceeds in another Primary Residence (Habitação Própria e Permanente, or HPP).

Key Conditions:

• The property sold and the new one must be used as your (or your family’s) primary residence.
• You must reinvest the full sale amount, not just the profit.
• Timing matters:
  • Reinvestment must happen within 36 months after or 24 months before the sale (if justified).

 
Practical Example

• Sale Price: €300,000
• Purchase + Costs: €150,000
• Capital Gain: €150,000
• Reinvested: €200,000

You reinvested two-thirds of the sale price, so two-thirds of the gain (€100,000) is tax-exempt. The remaining one-third (€50,000) is taxable.

 
Don’t Forget to Declare Intent to Reinvest

Even if you plan to reinvest later, you must declare your intention in your IRS return (Annex G, Table 5A) for the year of the sale. If you later reinvest only part of the proceeds, the tax office will recalculate your tax and add interest.

 
What Counts as a Primary Residence (HPP)?

The Tax Authority will usually accept your property as a primary residence if you can prove you actually lived there. This includes:

• Updated tax address on the Finance Portal (required)
• Utility bills (water, electricity, internet)
• Social Security and tax records with matching address
• Official correspondence or contracts sent to that address

If you haven't lived there for 12 months, exceptions may apply (e.g., marriage, divorce, birth of children).

 
Other Reinvestment Options

If you're not buying a new home, you may still benefit by reinvesting in:

• Life insurance (savings-type policies)
• Open pension funds
• The public capitalization system
• Pan-European Personal Pension Products (PEPP)

Each option has specific criteria—talk to a financial advisor.

Conclusion

Selling property in Portugal? Don’t let capital gains tax catch you off guard. Whether through reinvestment in a new home or in qualified financial products, there are ways to reduce or eliminate your tax burden—especially if it’s your primary residence.

With proper planning, you can keep more of your profit.
Have questions? Reach out to a licensed tax advisor or real estate professional for personalized guidance.


(Credits: Doutor Finanças)