Are you going to change houses, selling one and buying another, but are worried about the capital gains tax to be paid? Don't worry, in today's article aimed at consumers in Portugal and guaranteed by the Portuguese Consumer Rights Watchdog DECO (Associação Portuguesa para a Defesa do Consumidor), we explain how to work out how much capital gains tax you have to pay in Portugal or whether you’re exempt from paying it, and how to communicate this to the Portuguese tax office.
"We want to sell our house to buy a smaller one. We know that we have to report this transaction to the tax authorities. How should we proceed? Will we have to pay capital gains tax?"
The first question has a simple answer. You must inform the tax authorities of the year in which the sale took place. The reason for this is simple: the profit that is eventually obtained from the transaction is taxable and the tax agency calculates the part that constituted a capital gain.
Capital gains tax calculator in Portugal
The value of the sale of the house is declared in the IRS. The tax office also asks you how much you bought the house for and the additional expenses related to the transaction, such as commissions paid to real estate agencies and the Energy Performance Certificate.
With the passing of the years, the purchase value has to be updated. For this reason, the tax authorities apply a monetary correction, which varies according to the year of purchase. The taxpayer only needs to indicate the initial purchase amount.
Works that provide added value to a property can also be deducted in the field "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 charges must be documented with an invoice issued in the name of the property owner.
If you reinvest in another house, you may not have to pay
If you sell your own permanent residence where you have been living and which must correspond to your official tax address, you may be exempt from paying tax on the profit obtained. However, it depends on the time between the purchase of the new house and the sale of the old one.
If you sell the house first, you have 36 months to buy another house and reinvest the profit. Until then, the taxation of the capital gains is suspended, since the owner informs the tax authorities of the intention to reinsert the surplus value they have gained back into the market.
After you buy your new house in Portugal, the tax authorities determine how much profit you have made and confirm the application of this amount in the purchase of a new house. However, it's important to ensure that the new house has officially become the family's own permanent home within 48 months of the sale of the old house.