Real Estate Capital Gains: Portuguese Tax Rules 2025

Introduction

Portugal’s booming short-term rental market – known as Alojamento Local (AL) – has attracted many investors and homeowners. However, when it comes time to sell a property that has been used as an AL (short-term rental), understanding the capital gains tax implications is crucial. The tax treatment can vary significantly depending on your residency status (resident vs. non-resident), how the property is owned (personally or through a company), and whether the property was your primary home or a rental investment. This comprehensive guide explains how capital gains are calculated in each scenario, highlights relevant exemptions (such as reinvesting in a new main residence, or retirement reinvestment relief), clarifies how an AL classification can affect tax treatment, and compares personal vs. corporate ownership structures. Clear tables summarizing key tax rates and scenarios are provided for quick reference.

Capital Gains Tax Basics in Portugal

What is a capital gain ? It’s the profit realized from selling an asset (in this case, real estate). In Portugal, capital gains on real estate are subject to tax, with some important nuances. The gain is generally calculated as the selling price minus the acquisition cost (purchase price), adjusted for certain factors . Specifically, the formula is:

Capital Gain = Sale Price – (Purchase Price adjusted for inflation + Allowable Expenses related to purchase/improvement/sale) .

• Inflation Adjustment: If you owned the property for more than two years, the purchase price can be indexed for inflation using official coefficients, reducing the taxable gain . This inflation relief helps account for the currency’s loss of value over time.

• Allowable Expenses: Costs that can be deducted from the sale proceeds include documented property improvements or renovations (typically those incurred in the last 12 years) and transaction costs such as notary, legal fees, and real estate agent commissions . These deductions reduce the capital gain subject to tax.

Example: Suppose you bought a property for €150,000 in 2010 and sold it in 2025 for €300,000. If inflation indexing adjusts the purchase price to, say, €180,000, and you had €20,000 of renovation and sale costs, the taxable gain would be €300,000 – (€180,000 + €20,000) = €100,000. This gain would then be subject to tax based on the rules explained below. (Note: If the property was acquired before 1989, any gain is fully exempt – Portugal does not tax gains on real estate purchased before the implementation of capital gains tax laws) .

Individuals: Residents vs. Non-Residents

Portuguese Tax Residents (Individuals): Residents benefit from a favorable regime on real estate sales. Only 50% of the calculated capital gain is taxable, and it is added to your annual income and taxed at the progressive IRS (personal income tax) rates . Portugal’s progressive rates range from about 14% up to 48%, so effectively a large property gain would face an top effective rate around 24% (since only half the gain is taxed at up to 48%) . Smaller gains may be taxed at much lower effective rates if they keep your income in lower brackets . For example, if a resident realizes a €100,000 gain, €50,000 would be added to their taxable income – the tax on that might range roughly from €0 up to ~€24,000 depending on other income and applicable bracket . Importantly, Portugal’s tax code allows resident sellers to benefit from certain exemptions (detailed in the next section) that can reduce or eliminate the tax on a gain, particularly for primary home sales .

Non-Resident Individuals: Historically, non-residents were taxed at a flat 28% on the entire gain, with no 50% exclusion . This was less favorable than the resident treatment. However, as of 1 January 2023, Portugal aligned the treatment for non-resident individuals with that of residents to ensure fair and equal taxation . Now, non-residents also have only 50% of the gain taxed, at the progressive rates applicable to Portuguese income . In other words, a non-resident seller in 2025 will effectively be taxed on half the gain at marginal rates up to 48%, the same way a resident would . This change marked a significant improvement over the previous flat 28% regime . For example, if a non-resident realizes a €100,000 gain in 2025, only €50,000 is subject to tax at the progressive rates – potentially saving a substantial amount compared to the old rule of taxing the full €100,000 at 28% . (Note: Non-residents typically have to file a Portuguese tax return to report the sale, and double taxation treaties generally allow Portugal to tax Portuguese real estate gains . Non-residents do not qualify for the primary residence exemptions unless they become tax resident or other special cases, as explained below.)

Primary Residence vs. Investment Property (Secondary Residence)

Capital gains taxation diverges greatly depending on whether the property sold is your primary residence (main home) or a secondary/investment property. Here’s how each scenario works for individual owners:

Primary Residence Exemptions (Individuals)

If the property is your habitação própria e permanente (primary and permanent home), Portugal offers generous relief. The most important is the reinvestment exemption:

• Reinvestment in a New Home: If you sell your primary residence and reinvest the proceeds into a new primary residence, you can obtain a full or partial exemption from capital gains tax . To qualify, the new home must be in Portugal or another EU/EEA country and you must adhere to the timeline. Currently, you have 36 months after the sale to reinvest into a new home (or up to 24 months before the sale, if you bought a replacement home prior to selling) . (Note: For sales that occurred before Sept 11, 2024, the reinvestment window was 24 months after sale, but this has since been extended to 36 months for more flexibility .) If you meet all conditions (reinvesting the net sale proceeds into another primary residence within the deadline), the gain is exempt from tax.

• Partial Reinvestment: If you only reinvest part of the sale proceeds, the law grants a proportional exemption. Only the portion of the gain corresponding to the amount not reinvested will be taxable . For example, if you sell your main home for €300,000 net and reinvest €200,000 (which is ~66.7% of the proceeds) into another home, then about 33.3% of the capital gain would be taxed while 66.7% is exempt . Essentially, whatever fraction of the sale you reinvest in a new home is the fraction of the gain that escapes tax.

• Senior (Retiree) Exemption: In addition to property-to-property rollover, Portugal has a rule to benefit older homeowners. If you are aged 65 or above (or officially retired), you can sell any property (not necessarily your main home) and reinvest the proceeds into an eligible pension fund or life insurance policy within 6 months, thereby avoiding capital gains tax . This is intended to allow seniors to downsize or rearrange their assets for retirement without a tax penalty. The full sale amount must be contributed to the approved fund/annuity to get the exemption.

• Historical Note – “Mais Habitação” Relief (2022–2024): Under a temporary housing stimulus law, sales of secondary homes or rental properties between 2022 and 2024 could be exempt from capital gains tax if the proceeds were used to repay the mortgage on the seller’s primary residence . This one-time measure aimed to reduce personal housing debt. It expires at the end of 2024 unless renewed . From 2025 onward, this specific relief is no longer available (barring any new legislation). So, normally, if you sell a secondary property, using the money to pay your own home’s mortgage will not grant a tax exemption (that was an exceptional, temporary provision) .

• Pre-1989 Ownership: As mentioned earlier, if the property was acquired before January 1, 1989, any gain is grandfathered-out of capital gains taxation . This applies regardless of residence status or property type, due to Portugal’s tax law changes in 1989.

It’s important to properly document your claim to a primary residence exemption. Authorities may require proof that the sold property was indeed your main home (e.g. it was your official tax address, you lived there most of the time) and that the new property was purchased/taken up as a main home. Additionally, you must indicate in your tax return (for the year of sale) your intention to reinvest and later report the completion of that reinvestment. Missing the deadlines or failing to produce evidence can nullify the exemption and result in the tax being due with penalties . When done correctly, the primary residence rollover is one of the most powerful tax benefits available to Portuguese residents.

Investment and Rental Properties (Including AL)

If the property sold is a secondary residence or investment property, different rules apply since it’s not your main home:

• General Taxation: For an individual (resident) selling a second home or rental property, the gain is taxable with no automatic exemption. The standard rule of 50% of the gain being taxed at progressive rates applies . In other words, half the gain is added to your income for the year and taxed according to the normal income tax brackets. You cannot use the primary-home reinvestment exemption because the property wasn’t your primary residence (with the exception of the temporary 2022–24 measure for mortgage repayment discussed above, which is now expired) .

• Short-Term Rental (AL) Classification – Special Considerations: When a property is used for Alojamento Local, it often means the owner had opened a business activity (Category B income for tax purposes) to operate the short-term rental. This business classification can affect how capital gains are taxed when you sell the property. Recent tax rules clarified in 2021 specify:

  
  

  • If you sell the property while it is still classified as an AL business asset, the gain will be taxed as business income (Category B), which is less favorable than the normal regime . In this case, the full capital gain is taxable (no 50% exclusion) because business income is taxed on its total profit. The gain would be added to your other Category B income in that year and taxed at progressive rates in full . Essentially, you don’t get the 50% reduction if the property is still in the AL business at the time of sale.

  • If you withdraw the property from AL (i.e., cease the short-term rental activity and return the property to your personal sphere) and then sell it after a certain period, the gain can be taxed under the normal capital gains rules (Category G). The law includes an anti-abuse rule: you need to wait at least 3 years after removing the property from your AL business before selling, otherwise the sale is still taxed under the harsher Category B rules . If you do wait ≥3 years post-AL, the property is considered fully in your personal portfolio again, and the gain on sale would enjoy the 50% exclusion and be taxed as a capital gain (Category G) . This means owners who want to benefit from the lower tax on gains might plan to stop their AL activity a few years before selling. (The rationale is to prevent someone from simply ending the AL right before sale just to get the tax break – hence the three-year rule to ensure it’s a genuine change of use) .

  • Depreciation “Recapture”: Another factor when a property has been used in an AL business is depreciation. If you’ve been renting the property under Category B with organized accounting, you likely deducted tax depreciation on the building each year as an expense. Those deductions reduce the property’s taxable cost basis. When you sell, any depreciation claimed will effectively be “recaptured” by increasing the taxable gain. In calculation terms, the acquisition cost used for computing the gain is the original purchase price minus any depreciation already deducted, adjusted for inflation . Thus, past tax write-offs are clawed back by making your gain larger. (If you used the simplified tax regime for AL, you didn’t individually deduct expenses like depreciation – in that case, depreciation isn’t separately accounted, but most AL operators with significant property value might opt for the organized accounting regime to deduct actual costs). In summary, expect that an AL property sale may incur a higher taxable gain if depreciation was utilized, compared to a scenario with no depreciation.

  
  

• Non-Residents with Investment Property: Non-resident individuals selling a rental/investment property in Portugal are taxed similarly now – only 50% of the gain at progressive rates (no 50% exclusion if it’s a business asset still in AL, by the same rules above). Non-residents cannot claim the main residence reinvestment exemption unless they formally become Portuguese tax residents and meet the primary residence criteria. Essentially, for a non-resident, a Portuguese property is always considered an investment/secondary property. That means no reinvestment relief is available to them (aside from any relief provided in their home country’s tax system via double taxation treaties). They should plan for Portuguese capital gains taxation on the sale as outlined.

Properties Held in a Company (Corporate Ownership)

It’s common for investors to hold Portuguese real estate through a corporate structure (such as a Portuguese Lda or an offshore company). The capital gains tax treatment in these cases differs from personal ownership:

• Portuguese Resident Companies: When a company sells a property, the gain is subject to Portuguese Corporate Income Tax (IRC). There is no 50% exclusion – companies are taxed on the entire gain as part of their taxable profits . The standard corporate tax rate is 21% (national rate) on taxable income, and most municipalities levy an additional municipal surtax up to 1.5%, making the typical combined rate up to 22.5% . (Small and medium enterprises benefit from a reduced 17% rate on the first €15,000 of taxable profit .) The capital gain is calculated similarly (sale price minus book value of the asset). Since companies depreciate real estate on their books, the book value is usually the original cost minus accumulated depreciation. Thus, like the individual case above, tax depreciation reduces the basis and increases the gain at sale. The company can also adjust the original cost for inflation (indexation) if the asset was held for more than 2 years , which slightly reduces the taxable gain (this indexation for inflation is available to both companies and individuals for assets held over 24 months). Any allowable selling costs would typically already be expensed or factored into the accounting profit.

• Reinvestment Relief for Companies: While companies cannot use the “buy a new home” exemption (that’s only for personal main residences), there is a provision in Portuguese tax law for reinvestment of business assets. If a company sells certain types of assets and reinvests the proceeds in acquiring new tangible fixed assets or certain qualifying assets for the business, it may be able to tax only 50% of the gain . In other words, half the gain can be exempt, similar conceptually to rollover relief. However, investment properties are explicitly excluded from this relief . This means if the asset sold by the company was classified as an “investment property” (e.g. real estate held to generate rental income, which an AL property would typically be), the 50% reinvestment relief does not apply . The relief is more geared toward operational assets. So a hotel company selling one hotel to buy another might qualify, but a company selling a pure rental apartment does not get this break. In practice, most property-holding companies will pay the full corporate tax on the gain regardless of reinvestment, unless legislative changes extend relief to investment properties in the future.

• Non-Resident Companies: If a foreign (non-Portuguese) company owns Portuguese real estate and sells it, Portuguese tax law treats the property as a permanent establishment (PE) in Portugal for tax purposes. This means the profit from the sale is taxable in Portugal just like it is for a resident company . The non-resident company will likely have to register and pay Portuguese corporate tax on the gain (or sometimes the tax may be withheld at the point of sale) at the same rates (21% + municipal) that apply to local companies . There’s no preferential rate for foreign companies – they are effectively treated “in the same manner as resident companies” regarding real estate income and gains . Double taxation treaties might allow the company’s home country to forgo taxing the gain, but that depends on the treaty; in any event, Portugal has primary taxing rights on real estate located in Portugal .

• No Main Residence Exemptions: Corporations cannot have a “principal residence,” so the reinvestment exemption for main homes obviously does not apply. Even if a property held via a company was used by a shareholder as a home, for tax purposes the sale is a corporate transaction, fully taxable – an important consideration for those who put their personal home into an LLC or similar.

• Distributing the Proceeds: One should also consider that when a company realizes a gain and pays corporate tax, the remaining after-tax profit may be distributed to the owners as dividends. Dividends to individuals can trigger additional tax (for example, a 28% withholding tax for Portuguese-resident individuals, or treaty-withholding rates for non-residents). This means that the overall tax burden of selling via a corporate structure could be higher than selling as an individual, once you account for both layers of tax (corporate and then personal dividend tax). In contrast, an individual selling the property pays tax once, under the rules described earlier. On the other hand, a company could choose to reinvest or hold the proceeds without an immediate second layer tax. The decision between personal and corporate ownership involves not only capital gains tax rates but also considerations of liability, estate planning, and ongoing rental income taxation. Each scenario should be evaluated with a tax advisor to determine the most efficient structure.

Summary of Tax Scenarios and Rates

To recap the above rules, the tables below summarize the capital gains tax treatment for various scenarios, distinguishing between individual (personal) ownership and corporate ownership.

Table 1: Capital Gains Tax on Sale of Real Estate (Individuals)

Notes: The above assumes the property was not bought before 1989 (which would otherwise make the gain exempt) . Progressive IRS tax brackets are updated annually; the top rate is 48%, kicking in at around €80,000 of taxable income (for 2024/25). Non-resident individuals are generally subject to Portuguese tax on Portuguese real estate gains regardless of their home country, though they should also consult their home country’s tax rules for any reporting or credit.

Table 2 : Capital Gains Tax on Sale of Real Estate (Companies)

Conclusion

Selling a property that has been used for short-term rentals (Alojamento Local) in Portugal requires careful tax planning. Portuguese tax residents enjoy a favorable regime where only half the gain is taxed, and they can eliminate capital gains tax entirely by reinvesting into a new home or via retirement-focused reliefs . Non-residents now benefit from equal treatment, avoiding the old flat 28% tax on the full gain . The situation gets more complex if your property was part of an AL business – you may need to plan ahead (e.g. withdrawing the property from business use in advance) to secure the more lenient tax treatment . Additionally, properties held through a corporate structure face a different tax regime, taxed under corporate laws with no personal-use exemptions .

It’s essential to understand how capital gains are calculated (taking into account inflation adjustments , allowable costs , and depreciation ) and to be aware of all exemptions or deductions you might qualify for – such as the primary residence rollover, senior reinvestment relief, or any temporary incentives. Always maintain good documentation (invoices for improvements, records of purchase and sale costs, proof of reinvestment, etc.) to substantiate any claims to relief . Given that tax laws can change (for instance, the recent changes in non-resident taxation and AL rules), it’s wise to consult a tax professional for up-to-date advice tailored to your specific circumstances. With proper planning, you can minimize the capital gains tax bite when selling your Portuguese property, and ensure you remain in full compliance with the law while maximizing your after-tax returns.