Like many countries, Portugal imposes a capital gains tax on the sale of assets. It only applies to capital gains realized on real estate and investments; personal items are not taxable and inheritances are only subject to a limited form of stamp duty. Your exposure will depend on where you live, how you hold the property and, in the case of property, whether it is your principal residence.
Real estate capital gains are added to your other income for the year and are taxed at the income tax scale, currently between 14.5% and 48%. Stocks, securities and bonds are taxed at a flat rate of 28% (assets deemed to originate in a ‘tax haven’ – including Gibraltar and Guernsey – are taxed at 35%).
The rules are actually quite generous for residents. For example, only 50% of the gain on the sale of real estate is taxable and you can get inflation relief after two years of ownership. Exemptions are also available.
There is no capital gains tax on the disposal of precious metals or cryptocurrencies, although this may be disputed if it appears that the seller is actually trading.
Principal residence exemptions for residents
If you reinvest the proceeds in another principal residence in Portugal – or anywhere in the EU/EEA that has a tax treaty with Portugal – you will not be subject to capital gains tax. You must do so within 36 months of the sale (or 24 months before) and live in the property within 6 months of the 3-year period.
Additional capital gains tax relief particularly benefits pensioners. If you are retired or over the age of 65, capital gains are now exempt if you reinvest the income from your principal residence in an insurance contract or a qualifying pension fund within six months of the sale.
Rules for non-habitual residents (NHR)
Those with NHR status avoid capital gains tax liability on certain worldwide gains, depending on which country has the taxing rights under the double tax treaty.
Where the gain is taxable in the country of origin – as with UK property – there is no liability in Portugal for non-habitual residents. However, the gains are ‘exempt with progression’, so they are always added to your annual taxable income to calculate your effective Portuguese tax rate. So even if 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 the NHR.
Capital gains tax for non-residents
Until now, non-Portuguese residents were subject to a flat tax rate of 28% on the entire gain made on the sale of real estate, shares, securities or bonds in Portugal , with EU residents having the option of being taxed as a Portuguese resident. in place.
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 laws accordingly later this year and that, in the meantime, the Portuguese tax authorities are already applying resident laws to non-residents in practice.
If you own Portuguese real estate through a non-resident corporate structure (corporation or trust), the gains are now also taxable in Portugal. Since 2018, where 50% or more of the value of a non-resident company is Portuguese real estate, the gain on the transfer of shares attracts 25% corporate tax (35% if it comes from a blacklisted jurisdiction).
This only applies where the double tax treaty between Portugal and the country of incorporation of the company gives Portugal taxing rights, for example, US-owned companies. For those not affected, such as companies based in the UK or Luxembourg, corporation tax is instead payable in those countries.
Liability for capital gains tax in the UK
Certain gains from Portuguese assets are also taxable in the UK for UK residents.
Even Portuguese residents with UK property are now subject to UK capital gains tax regardless of ownership.
Where tax is paid twice, the UK-Portugal Double Tax Treaty ensures that a credit may be given, although you will pay the higher amount.
Reduce your exposure to capital gains tax
With careful planning, it is possible to significantly reduce your tax liability. For example, certain types of life insurance policies can offer significant tax advantages in Portugal, so talk to a specialist wealth manager to find out which ones can help you and how.
An adviser with cross-border experience can help you find tax-efficient and compliant ways to manage your assets so you don’t pay more tax than necessary, in Portugal or the UK.
Tax rates, coverage and reliefs may change. All statements regarding taxation are based on our understanding of current tax laws and practices which are subject to change. Tax information has been summarized; the individual should seek personalized advice.
By Adrien Hook
|| [email protected]
Adrian Hook is a partner of Blevins Franks in Portugal and has been providing holistic financial planning advice to UK nationals in the Algarve since 2008. He holds the Diploma of Financial Advisor (DipFA) and is a Fellow of the London Institute of Banking and Finance (LBF) .