From time to time we receive questions from our readers, for specific situations that sometimes may be similar to the queries of other readers. In view of that, we decided to publish the answers. If you also have some questions regarding tax in Portugal, please feel free to send it to us.
Can you explain the tax implications of selling a property here? I understand that if I down-size and move from my house to an apartment, I will be taxed on the difference between the sale and the purchase price. Is this correct? And what if I sell but don’t buy, and choose to rent?
First of all let me tell you that you can only use the reinvestment to avoid capital gains, if you are resident and the property you are selling is your main residency. This means that your address at the tax office, must be the address of the property being sold.
You are only liable for tax, if you had a gain on the transaction. Please note that the value you paid for the property needs to be adjusted, according to the inflation coefficient, applicable to the year of purchase. This means that the purchase value will increase for the capital gains calculation.
Also, from the sale of your property you can deduct, the costs incurred with the purchase operation and sale of the property, costs incurred in property over the past twelve years, such as property refurbishments or other money spent to increase the value of the asset, including the cost of the energy certification.
If after this, you still made a gain, then you can reinvest the proceedings of the sale on another purchase within the EU. This needs to be done on a purchase made between 24 months prior and 36 months after the sale. If the reinvestment in the new property is lower than the total sale, than the tax will be calculated pro-rata.
So in this case, if you are selling for 400.000€ and your tax bill was going to be 25.000€, you will only be tax exempt if you reinvest the full sale price 400.000€. If your new apartment only costs 200.000€, then your tax bill will be 12.500€, has you only reinvested half.
If you decide to rent and not to reinvest, then you are liable for the full tax bill. The payment of the capital gain, occurs in August of the year following the sale.
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