Portugal Finalizes Capital Gains Tax Exemption Rules for Property Sales
The Portuguese Tax Authority has clarified the terms of a temporary capital gains tax exemption under the “Mais Habitação” legislative package, a measure with significant implications for property owners across the country. The government has announced that individuals selling second homes or land designated for construction can be exempt from capital gains tax if the proceeds are used to amortize the mortgage on their primary and permanent residence. This special regime is effective for transactions occurring between January 1, 2022, and the final deadline of December 31, 2024, after which the benefit will no longer be applicable. The legislation stipulates that the full value of the sale, after deducting any outstanding loans associated with the sold property's acquisition, must be applied to the principal of the primary home's mortgage. This payment must be completed within a strict three-month window following the sale date. For transactions that took place before the law was officially enacted on October 7, 2023, a special grace period allows the amortization to be completed within three months from that date. A recent amendment to the law has also reduced the prior residency requirement for the sold property from 24 months to 12 months, making the benefit accessible to a wider range of homeowners. However, the law includes restrictions, preventing taxpayers from using this benefit if they have already utilized other reinvestment schemes within the same year or the three previous years. The government has stated that the tax authorities (Finanças) reserve the right to demand proof of compliance with these terms, including evidence of the mortgage amortization within the specified timeframe. Legal experts in Lisbon have advised that property owners must meticulously plan any such transaction to ensure all technical conditions are met, as failure to do so will nullify the tax exemption, leading to a significant tax liability. Navigate Portuguese property regulations with expert guidance at realestate-lisbon.com.