The new Government, led by Prime Minister Luís Montenegro, was formed in April 2024, and from the outset, some laws were revised and others announced as improvements in the housing sector. This has been one of the most deprived sectors in Portugal in recent years, and consequently, the new Government has focused its efforts here. The new measures, previously mentioned in our blog post – What changes with the new housing measures in Portugal? — are based on six pillars: legislative simplification, encouraging housing supply, public housing promotion, restoring confidence in renting, promoting youth housing and ensuring housing accessibility.

Today, we highlight two more measures regarding capital gains on the sale of a house and the IMT exemption on property purchase.

Photo by Ярослав Алексеенко – Unsplash

Exemption of Capital Gains in Portugal:

When you sell a property and make a profit, you generate capital gains, which are usually taxed under income tax (IRS). You will pay income tax on 50% of the amount unless a specific tax exemption applies. It can also incur capital losses if you lose money from a property sale.

What are the new measures of Montenegro's Government?

The new measures from Montenegro's Government, part of the “Construir Portugal” programme, introduce income tax (IRS) exemptions on capital gains from property sales. This measure, approved on 27 May by the Council of Ministers, aims to widen the number of people eligible for the IRS exemption on capital gains.

The measure adopted by the previous government under the “Mais Habitação” programme allowed for a one-time exemption from capital gains tax on income tax (IRS) every three years.

Currently, Montenegro’s Government’s measure stipulates that if the profit from a property sale is used to purchase a new primary residence, the owner will be exempt from paying the IRS on the capital gains. This change could affect transactions made in 2023 and be reflected in the 2024 income tax return, so it is important to be aware of the need to amend the IRS declaration.

To obtain the capital gains tax exemption, owners who sell their property and purchase another for permanent residence must have lived in the property for at least 12 months and reinvest the proceeds within three years.

Owners will be exempt from this capital gains tax whenever they sell and buy new properties, without needing to wait three years between each tax exemption, as was required under the previous government led by António Costa.

In the future, the Government plans to change the calculation of capital gains by adjusting property values for current inflation. This change is expected to make the tax fairer and more accurately reflect the actual gain from selling a property in Portugal.

Essentially, the measure, approved by Parliament on 21 June, aims to increase housing mobility, attract foreign investment, and revitalise urban centres.

IMT Exemption for Young People up to 35 Years Old:

IMT, or Municipal Tax on Property Transfers, is charged whenever you buy a house. Its amount is calculated based on the higher value, Tax Property Value (VPT) or the declared value in the deed.

The new measure is aimed at young people up to 35 years old who wish to buy their first home, making property ownership more accessible, which is a major concern for young Portuguese individuals. Those over 35 can benefit from this tax exemption if they purchase a property jointly with someone aged 35 or younger.

Beneficiaries must submit their income tax return in their own name, and the declared value of the deed must not exceed €316,000, which corresponds to the fourth tax bracket, to ensure full IMT exemption.

For young people looking to buy a house valued above the fourth IMT bracket, an 8% tax will be applied to the portion exceeding €316,772 and up to €633,453. For properties valued between €633,453 and €1,102,920, the tax rate will be 6% (single rate). For amounts above €1,102,920, the tax rate will be 7.2% (single rate).

Those who benefit from this exemption cannot rent the house, convert it into a holiday rental, or sell it within the first six years. The only exceptions to these rules are family changes (such as an increase in dependents, divorce, or marriage) or a job change requiring relocation to a place more than 100 km away.

The IMT exemption applies to the house purchase or units for primary residence, provided they are not under construction. If one of the spouses already owns a property, the exemption will be 50% of the total value. If the individual has not owned a property in the last three years, they may benefit from a full exemption. Inherited properties are not eligible for this exemption. The same rules apply to Stamp Duty Land Tax (Imposto de Selo), meaning it is available to young people up to 35 years old who purchase a home up to €316,772.

The measure came into effect on 1 August 2024 and could lead to significant savings, depending on the property value.

Need help with abbreviations and property terms? Read our article “Real Estate Glossary”.

The new Government measures aim to stimulate housing mobility and promote quicker independence for young people by easing access to purchasing their first home. Although these changes could offer significant opportunities, the Government acknowledges that, particularly for young people, these measures are still insufficient to address the housing issues in Portugal. However, they represent an important starting point.