A capital gain occurs when you sell something for more than you spent to acquire it. This happens a lot with investments, but it applies to personal property too. Are you planning to sell your home? Find out what tax you will have to pay and how to reduce this liability.
You can’t hide from the tax department
Any property transaction performed in Portugal must be reported to the Tax Authorities by the notary that executes the deed. This means that when you declare the sale on your tax return, the tax authorities already know of it, so if you fail to include this on your declaration, the taxman will be after you.
It’s mandatory to file a tax return every time you sell a Portuguese property
Irrespective of your tax domicile, if you sold a property located in Portugal, this means that you need to declare it in your tax return in Portugal. Regardless if there was a gain or not, it’s mandatory to make this declaration, which happens normally in May of the year following to the sale.
Declaring the sale doesn’t mean you need to pay tax
You only pay tax, if you had a gain on the transaction. So if you sell something for more than the purchase price, then the difference is a capital gain and that is reported on your taxes. However please note that the value you paid for the property needs to be updated, which means that this value it will in most cases increase for the capital gains calculation. Also, some expenses will be included in the tax return and deducted from any gain obtained.
In which cases your sale is tax exempt
It is possible to be exempt from tax in certain situations. For example if the property was acquired prior to 1989, it’s not liable to any CGT. Nevertheless, taxpayers will still have to declare these operations. But this is not the only tax exemption on capital gains from the sale of a property. The law provides, for example, that if you use the full amount of the sale of a property to buy another home (for own and permanent housing), to build a home or purchase of land intended for the construction, you don’t pay tax on capital gains. Please note that this reinvestment of the gains, needs to happen within 36 months and can be done in any EU country.
Expenses allowed to deduct your capital gains
From the sale of your property you can deduct, the costs incurred with the purchase operation and sale of the property (eg IMT and registers on the purchase, real estate commission on the sale, etc). Taxpayers can also deduct costs incurred in property over the past five years, such as property refurbishments or other money spent to increase the value of the asset, including the cost of the energy certification.
Even if they do not plan to sell your home for now, it is important that you keep all supporting charges and make sure this invoices include your name and fiscal number and very important: the correct address of the property. The repayment of mortgage loans, incurred to purchase the property, will also be taken into consideration, when calculating the tax return.
It’s important that you plan ahead, as you can’t afford any tax surprises. Please feel free to visit us for a friendly chat and ask us for a capital gain tax simulation on your property. If you fear that you may be liable for a big capital gain tax bill, then let’s study your case, we may encounter a way of substantially reduce this tax burden.