Tax Implications of Selling Property in Portugal

What international property owners in the Algarve need to know before they sell

Selling a property in Portugal can be exciting — whether you’re cashing in on a smart investment, downsizing, or moving on to your next chapter.

But before you sign the sale deed and toast the deal, there’s one essential topic every seller — especially international owners — must understand: tax.

In Portugal, the tax implications of selling your property depend on several factors:

• Your residency status

• How the property has been used

• Whether it’s held an Alojamento Local (AL) license for short-term rentals

The way these elements are structured can make a significant difference to what you actually keep after the sale. This guide walks you through capital gains tax, legal obligations, and smart planning strategies to protect your profit when selling your home in the Algarve.

1. Capital Gains Tax (CGT) in Portugal — What It Is and How It Works

When you sell your property for more than you bought it, the difference — minus allowable costs — is considered a capital gain.
Capital Gains Tax (Imposto sobre Mais-Valias) applies to that profit.

Here’s how it breaks down:

• Residents in Portugal:
  Tax is applied to 50% of the gain, which is then added to your other income and taxed at your personal income tax rate (IRS).

• Non-residents:
  Tax is charged at a flat rate of 28% on the total gain.

• EU/EEA residents:
  If you live in the EU or EEA, you can opt to be taxed as if you were a resident, which may lower the amount owed.

Official guidance: Portal das Finanças

Example:

If you purchased a villa in Vilamoura for €600,000 and sell it for €900,000, after deducting valid expenses (such as renovation costs, notary fees, and agency commissions), your taxable gain might be €250,000.

If you’re a non-resident, your capital gains tax could be approximately €70,000 (28% of €250,000).

2. AL Licenses and Higher Capital Gains Tax

This is where many sellers — particularly those who rent their properties seasonally — face unexpected costs.

If your property has been used as Alojamento Local (AL) for short-term rentals, your capital gains tax treatment changes — and the difference can be substantial.

Capital Gains Tax (CGT) for AL Owners:

• You must wait 3 years after cancelling your AL license to avoid higher capital gains tax.

• If selling 3+ years after cancellation, tax is applied to 50% of the gain, at the standard IRS rate — just like a residential property.

• If selling a property used as AL within the last 3 years, tax is calculated on 95% of the gain, and no expense deductions are allowed.

• For non-AL properties, tax applies to 50% of the net gain, with eligible expenses deductible.

For owners who have operated short-term rentals, failing to plan can result in tens of thousands of euros in extra tax.

For AL registration rules: ePortugal.gov.pt

Tip for buyers:

If you plan to rent out your property, tell your real estate agent upfront. A professional agency like Private Luxury Collection can connect you with experienced tax advisors who will help structure your purchase in a tax-efficient way, so you don’t face a nasty surprise when you decide to sell.

3. Deductible Expenses That Reduce Your Tax Bill

You don’t pay tax on everything — only on your profit after allowable deductions.

Eligible expenses include:

• Real estate agency commissions

• Legal and notary fees

• Renovation and improvement costs (with official invoices)

• IMT (property transfer tax) from the original purchase

• Stamp duty from the original purchase

Keep all supporting documents — they’re essential when declaring your gain.

More details: Autoridade Tributária e Aduaneira

4. Exemptions and Tax Breaks

Some sellers may be eligible for partial or full CGT relief, depending on their circumstances:

• Primary residence reinvestment:
  If the property is your main home and you reinvest the proceeds in another primary residence in Portugal or within the EU/EEA within 36 months, you may be exempt from CGT.

• Inherited or pre-1989 properties:
  Properties acquired before 1989 or inherited under specific conditions may benefit from reduced or zero tax.

• Non-Habitual Resident (NHR) regime:
  Qualifying individuals under NHR may access reduced rates or exemptions.

These exemptions are not automatic. Expert tax guidance is crucial to secure the benefits you’re entitled to.

5. Legal Requirements When Selling a Property

To complete the sale of a property in Portugal, you’ll need:

• A valid Energy Performance Certificate (EPC) before listing

• Updated property documents (Caderneta Predial and Certidão Permanente)

• Tax clearance and declaration of capital gains following the sale

A trusted real estate agency like Private Luxury Collection can coordinate the process, ensuring your sale is compliant, efficient, and aligned with Portuguese law.

More information: ePortugal.gov.pt

6. Planning Ahead for Tax Efficiency

Selling well isn’t just about timing the market — it’s about timing your structure. Smart sellers plan well in advance.

• Confirm your residency status before selling — it affects your rate.

• Organise and retain deductible expense receipts early.

• If relevant, deactivate your AL license well before listing.

• Consider reinvestment strategies if eligible for exemptions.

• Partner with an experienced real estate broker and tax professional who can help structure your sale to reduce exposure and maximise returns.

At Private Luxury Collection, we work closely with international sellers to help them optimise their tax position, align their sale with the most favourable timeline, and keep more of their hard-earned equity.

Book a confidential consultation to discuss your personal situation.

7. The Bottom Line

Selling a property in Portugal is about more than finding the right buyer — it’s about protecting your profit.

If your property has been operated as AL, plan your sale timeline carefully. If you’re buying and intend to rent, structure your investment intelligently from day one.

With the right planning, expert guidance, and professional support, selling your home in the Algarve or Vilamoura can be smooth, compliant, and financially rewarding.

Useful Links for Property Sellers

• Portal das Finanças – Capital Gains Tax

• ePortugal – AL License Registration

• European Commission – EU Taxation