Reinvestment of the Sale Proceeds

Capital Gains Reinvestment (Reinvestimento) in Portugal

Reinvestimento is the legal mechanism that allows homeowners in Portugal to avoid or reduce Capital Gains Tax (Mais-Valias) when selling their property.

Here are the essential rules, explained clearly:

1. What is required to qualify for tax exemption?

To avoid paying tax on the profit from the sale, all of the following conditions must be met:

Primary Residence — Habitação Própria e Permanente (HPP)
The property sold must have been your official tax residence (morada fiscal) registered with the Portuguese Tax Authority (Autoridade Tributária e Aduaneira).

New Use of Funds
The sale proceeds must be reinvested in the purchase, construction, or extension of another HPP (primary residence).

Location Requirement
The new property must be located in Portugal, or in another country within the European Union or the European Economic Area (EEA).

2. What are the deadlines?

The Portuguese State allows flexibility — but deadlines are strict:

Reinvestment After the Sale
You have 36 months (3 years) after selling your property to acquire the new home.

Reinvestment Before the Sale
You may purchase the new property up to 24 months (2 years) before selling the existing one.

3. What counts as reinvestment?

The following amounts may be deducted from the sale value for capital gains calculation purposes:

• The amount used to purchase the new property.

• The amount used to repay the mortgage loan (amortização do empréstimo) on the property sold.
  (This is crucial: capital gains are calculated after settling the outstanding bank debt.)

• Construction costs or renovation works carried out on the new HPP, provided they are supported by legally issued invoices (faturas).

4. Partial Reinvestment

If the full sale amount is not reinvested (for example, selling for €300,000 but purchasing a new property for €200,000), the exemption becomes proportional.

You will pay Capital Gains Tax only on the portion of profit corresponding to the amount not reinvested.

5. How to declare reinvestment in your Portuguese tax return?

You must declare your intention to reinvest in Annex G — Anexo G of your annual Portuguese income tax return (Declaração de IRS — Imposto sobre o Rendimento das Pessoas Singulares).

Important points:

• Even if you have not yet purchased the new property, you must indicate in Table 5 (Quadro 5) the amount you intend to reinvest.

• The Portuguese Tax Authority (Finanças) places the tax assessment on hold until the reinvestment deadline expires.

⚠️ Important Update: The 24-Month Residency Rule (Law in force since 2024)

Since 2024, to benefit from the reinvestment exemption, you must have maintained your tax residence (morada fiscal) at the sold property for at least 24 months prior to the sale date.

This rule prevents taxpayers from changing their registered address shortly before selling solely to obtain tax exemption.