Portugal's Capital Gains Tax Exemption: A Critical Update for Investors
Foreign investors and property owners in Portugal must take note of a crucial clarification from the Portuguese Tax Authority (AT) that significantly impacts tax planning for real estate sales. The popular capital gains (IRS) exemption under the 'Mais Habitação' program is only valid for mortgages that existed before October 7, 2023. This decision closes a potential loophole and solidifies the rules for anyone looking to sell property in Portugal.
What Foreign Investors Need to KnowThe rule in question allows sellers to be exempt from capital gains tax if they use the profits from selling a property (e.g., a rental unit or second home) to pay down the mortgage on their primary residence in Portugal. However, the AT has now definitively stated this benefit does not apply to new mortgages. "This is a pivotal piece of information for anyone structuring a real estate deal in Portugal," explains a Lisbon-based financial consultant. "The strategy of selling one asset to pay down a new mortgage on another is off the table if you want to claim this specific exemption. The debt must be pre-existing."
Actionable Steps for Today's Buyer- Review Your Mortgage Date: If you own multiple properties and planned to use this tax break, verify the contract date of your primary residence mortgage. If it's after October 7, 2023, you will be liable for capital gains tax on any sale.
- Re-evaluate Your Exit Strategy: For investors holding Portuguese property, this ruling may alter the profitability of a planned sale. Calculate your potential capital gains tax liability without the exemption to understand your true net return.
- Consult a Tax Advisor: Given the nuances of Portuguese tax law, seeking professional advice is paramount. An expert can help you navigate the existing legal framework and explore other potential deductions or tax-efficient strategies.
- Territorial Limitation: Remember, this rule applies only to properties and mortgages within Portugal. The property sold and the property whose mortgage is being paid down must both be in Portuguese territory.
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