Capital Gains Tax In Portugal | A Guide To Tax Planning

This article is intended for expats in Portugal and delves into the Portuguese tax system, as well as strategies for minimising and mitigating capital gains tax under Portuguese tax law.

Capital Gains Tax Portugal

Whether you are a UK expat living in Portugal or planning to make the move, it's essential to understand your tax obligations and how the Portuguese tax system differs from the UK’s, especially when it comes to Capital Gains Tax (CGT). 

Tax laws in Portugal can vary significantly to the UK and other countries, and getting a clear understanding of them should be a top priority when organising your finances. Not only will this help you stay legally compliant, but it can also save you money and allow you to take full advantage of the tax benefits Portugal offers. 

Navigating a new tax system can feel overwhelming but our guide will help you get to grips with how taxes work in Portugal, with a focus on CGT. With the right knowledge and financial structure, you can reduce your tax bill and make sure your finances are working as efficiently as possible.

The Wealth Genesis | Expat Financial Advice In Portugal

Expat Taxes in Portugal 

Personal Income Tax

In Portugal, you’ll be considered a tax resident if you spend more than 183 days in the country within a 12-month period. As a tax resident, you'll be taxed on your worldwide income, whereas non-residents are only taxed on income sourced in Portugal (such as rental income from a Portuguese property) unless a tax treaty or double taxation agreement applies.

Portugal uses a progressive income tax system, with rates ranging from 14.5% to 48%. On top of this, there’s an additional solidarity surcharge of 2.5% on income between €80,000 and €250,000, and 5% on income over €250,000. Understanding your residency status and how income is taxed is a key step in managing your finances effectively as an expat in Portugal.

Capital Gains Tax 

Capital Gains Tax (CGT) is the tax applied to the profit you make when selling assets such as property, stocks, shares, or bonds. In Portugal this only applies to real estate capital gains and gains on investments- other assets such as personal items sold for profit generally do not incur CGT. 

Capital gains tax rules differ depending on whether you're a tax resident or non-resident, so understanding your residency status is key. The amount of CGT you pay can also vary based on the type of asset sold, where it's located, and how long you’ve held it. 

For Portuguese tax residents, when selling real estate, only 50% of the gain is taxable and that taxable amount is added to your total annual taxable income and taxed at the progressive income tax rates. 

Other investment gains, such as from shares or bonds, are typically taxed at a flat rate of 28%. If you're a Portuguese tax resident and have overseas investments, those gains may also be subject to CGT in Portugal, unless a tax treaty or double taxation agreement applies. 

Be aware that Portugal maintains a list of jurisdictions it considers "tax havens", including Jersey, Guernsey, the Isle of Man, Monaco, the UAE, and several Caribbean islands (see the full list here). Any gains from assets held in these jurisdictions will be taxed at a higher capital gains tax rate of 35%. On a more positive note, any assets acquired before January 1st, 1989 are fully exempt from CGT in Portugal.

How Much Capital Gains Tax Will You Pay?

To calculate how much Capital Gains Tax (CGT) you’ll owe, start by taking the sale price of the asset you sold and subtracting the original purchase price. You can also deduct any costs associated with the purchase or sale such as legal fees, estate agent fees, and any property improvement costs, such as renovations or maintenance work, as long as you have supporting evidence like receipts or invoices to include with your tax return. 

If you're a resident, only 50% of the net gain will be subject to capital gains tax in portugal. However, if you're a non-resident, the full gain amount will be taxable. 

Portuguese Capital Gains Tax Exemptions 

Portugal offers some valuable tax exemptions for both residents and non-residents, which can significantly reduce your Capital gains tax exposure. One key exemption is the primary residence relief. If you sell your main home or property in Portugal and reinvest the proceeds into another primary residence within the EU or European Economic Area (EEA), you may qualify for a full CGT exemption, provided the reinvestment takes place within 24 months before or 36 months after the sale.

Unfortunately, whilst this was once a popular option for UK expats reinvesting in UK property, the exemption no longer applies to UK homes following Brexit.

Another useful exemption is available to retirees and individuals aged 65 or over. If you sell your main residence and reinvest the proceeds into a qualifying pension or insurance product within six months, you may also be eligible for a full capital gains tax exemption. This can be especially beneficial for expats looking to downsize and structure their retirement income in a more tax-efficient way.

NHR (Non-Habitual Resident) Regime and Capital Gains Tax in Portugal

Although new applications to Portugal’s Non-Habitual Residency (NHR) scheme have now closed, residents who already hold NHR status can still enjoy a range of generous tax advantages. 

Under the scheme, foreign-sourced income, including certain capital gains, may be exempt from Portuguese tax for a period of 10 years, provided the income is taxed in the country of origin. This means that NHR individuals who sell property or shares located outside of Portugal may not be liable for Portuguese capital gains taxation (CGT). 

However, it’s important to note that this exemption does not apply to Portuguese-sourced gains. Any sale of real estate or investments within Portugal will still be subject to standard CGT rules, even for those with NHR status.

How To Reduce Capital Gains Tax In Portugal

For expats living in Portugal, there are smart and effective ways to significantly reduce overall tax liabilities, including Capital Gains Tax, through careful financial planning and the use of locally compliant investment structures. One powerful option is the Portuguese Bond, a financial tool designed specifically to integrate seamlessly with the local tax system.

This is structured to combine investments with life insurance into a tax-efficient wrapper. While your investments remain inside the bond, any growth is tax-deferred, allowing for compounding growth without annual tax deductions, unlike regular investment accounts which may be taxed at the standard 28%, or even 35% if linked to blacklisted jurisdictions.

After holding the bond for just five to eight years, only 80% of the gains are subject to tax upon withdrawal; if you hold it for eight years or more, that falls to just 40%, effectively reducing your tax rate from 28% to just 11.2%, saving you more than 60% in tax. This makes it an excellent solution for expats planning to stay in Portugal long-term (five years or more). To set up a Portuguese Bond, you must be a tax resident and have a minimum of £100,000 to invest.

It’s also important to keep in mind that, like any investment, the Portuguese Bond carries a level of risk, but also the potential for higher rewards. You’ll have access to a wide range of investment options, allowing you to build a diversified portfolio that suits your personal risk appetite. With multi-currency options, flexible withdrawals, and potential exemptions from wealth and inheritance tax, this bond is particularly well-suited to the expat lifestyle. For expats committed to life in Portugal, it’s a highly tax-efficient way to structure your wealth and plan for a financially secure future.

Financial Advice For Expats Living In Portugal

If you're planning a move to Portugal, whether for work, retirement, or you're already living there, it's well worth exploring how you can reduce your tax liabilities and protect your overall wealth. Working with a cross-border financial adviser can help ensure that you are making the most of opportunities to lower your tax burden. 

At The Wealth Genesis, we have advisers based in Portugal who specialise in helping expats structure their wealth and investments in the most tax-efficient way possible. We work closely with each client to create a tailored financial strategy for their financial goals. 

As we are fully independent, we do not base our advice around any particular financial products or providers, just a commitment to helping our clients find the best solutions for their unique circumstances. If you'd like to learn more about Portuguese bonds or other strategies to reduce your tax burden in Portugal, book a free discovery call with one of our advisers today using the diary below.