Capital gains tax for residents and non-habitual residents (NRH) in Portugal. Rules, exemptions and how to reduce your exposure. Insights by cross-border tax and wealth management experts, Blevins Franks.

In the article below, Adrian Hook examines the issue of Capital Gains tax in Portugal, looking at who is liable, what is liable, and how to lower your exposure. Conditions vary depending on your status in Portugal, whether you are resident, non-resident or NHR - non-habitual resident, how the property is owned and whether it is the main home or not.

This article was originally published by Blevins Franks here.

• Find out more about Blevins Franks and see more articles by their experts on a range of financial themes.
• Check our Moving to Portugal Guide for more tax information.

 

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How much capital gains tax will you pay in Portugal?
By Adrian Hook, Partner, Blevins Franks
 
If you are resident in Portugal, you will be liable for Portuguese capital gains tax when you sell a property or capital investments.  This applies to worldwide assets. Non-residents are liable on assets located in Portugal.

Like many countries, Portugal imposes a capital gains tax on the sale of assets. It only applies to gains made on real estate and investments; personal items are not taxable and inheritances are only subject to a limited form of stamp duty.

Your exposure to Portuguese capital gains tax will depend on whether you are resident, how you own the asset and, with property, whether it is your main home.

Capital gains tax for Portuguese residents
Residents in Portugal are liable to tax on gains made on worldwide property and investments acquired from 1 January 1989 onwards.

• Real estate gains are added to your other income for the year and taxed at the income tax scale rates, currently ranging from 14.5% to 48%.
• Shares, securities and bonds are taxed at a flat 28% rate (assets deemed to be from a tax haven, including Gibraltar and Guernsey, are taxable at 35%).   

 
The rules are actually quite generous for residents. For example, only 50% of the gain on the sale of real estate is liable to tax and you can receive inflation relief after two years of ownership. There are also exemptions available.

There is no capital gains tax on the disposal of gold, other precious metals or on the disposal of cryptocurrencies such as bitcoins. This could be challenged if there are a series of transactions that suggest that the seller is actually trading.

Main home exemptions for residents
If you reinvest the proceeds into another main home in Portugal, or anywhere in the EU/EEA that has a tax treaty with Portugal, you will not attract capital gains tax. To qualify, you must do this within 36 months after the sale (or 24 months before) and also live in the property within six months of the three-year deadline.
 
Unfortunately, this exemption no longer applies to UK properties, so British expatriates selling their Portuguese home to return to the UK no longer benefit.
 
An additional capital gains tax relief was introduced in 2019 that can particularly benefit retirees. If you are either retired or aged over 65, gains are now exempt if you reinvest proceeds from your main home in an eligible insurance contract or pension fund within six months of sale.
 
Rules for non-habitual residents (NHR)
Those with NHR status avoid liability for capital gains tax on certain worldwide gains, depending on which country has the taxing rights under the terms of the double tax treaty.
 
Where the gain is taxable in the source country, such as with UK real estate, there is no liability in Portugal for non-habitual residents. Gains are exempt with progression, however, so are still added to your annual taxable income to calculate your effective Portuguese tax rate. So, although not directly taxable, the gain could increase your overall tax bill.
 
Conversely, UK shares are taxable in the country of residence, so this gain is subject to Portuguese taxation under NHR.
 
Capital gains tax for non-residents
Until now, non-Portuguese residents have been subject to a flat 28% tax rate on the full gain made from the sale of a property, shares, securities or bonds in Portugal, with EU residents having the option of being taxed as a Portuguese resident instead.

However, in 2021 the European Court of Justice ruled that this was discriminatory under EU law.  We understand that Portugal will therefore potentially change its tax law accordingly later this year, and that in the meantime Portuguese tax authorities are already applying the resident laws to non-residents in practice.

If you own Portuguese property through a non-resident corporate structure, such as a company or trust, the gains are now also taxable in Portugal. Since January 2018, where 50% or more of a non-resident company's value comprises of Portuguese real estate, the gain on the transfer of shares attracts 25% corporation tax (35% if from a blacklisted jurisdiction).
 
This only applies where the double tax treaty between Portugal and the company's country of incorporation gives Portugal taxation rights, for example, US-owned companies. For those who are not affected, such as companies based in the UK or Luxembourg, corporation tax is instead payable in those countries.
 
Liability for UK capital gains tax
Some gains from Portuguese assets are also taxable in the UK for UK residents.
Even Portuguese residents with UK property are now subject to UK taxes on capital gains, regardless of how it is owned. Liability for residential property has been in place for non-UK residents since April 2015 but, from 6 April 2019, it also applies to UK land or commercial property.

Where tax is paid twice, the UK/Portugal double tax treaty ensures a credit can be given, although you will pay whichever amount is larger. 

Reducing your capital gains tax exposure
With careful planning, it is possible to significantly reduce your tax liability. For example, certain types of life insurance policies can offer significant tax benefits in Portugal, so speak to a specialist wealth manager about which ones may help you and how.
An adviser with cross-border experience can help you find tax-efficient, compliant ways of managing your assets so that you do not pay more tax than you need to, in Portugal or the UK.

Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.

Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
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March 2022.