expats in portugal capital gains tax

Capital gains tax: what UK homeowners in Portugal need to know

UK property owners who have made permanent overseas relocation did not have to pay UK capital gains tax on property sales for a long time. However, major modifications in recent years have brought most non-residents under the scope of this tax. 

If you own property in the United Kingdom, you should research the tax consequences and learn how to minimise your tax bill. Also, you can take advantage of many tax advantages in Portugal. We hope this blog helps UK homeowners in Portugal get their questions answered

Capital gains tax in Portugal

In cases where capital gains tax is due, Portuguese citizens must pay tax on 50% of their international gains using the scale rate. These tax brackets go as high as 48% and provide relief from inflation after two years of ownership.

Gains from the sale of a UK home are exempt from tax for the first ten years under the non-habitual residence tax scheme, provided certain conditions are met.

Changes for non-UK residents

Selling a property may subject you to non-resident capital gains tax (NRCGT).

At first, this was solely relevant to homes in the United Kingdom. However, beginning in April 2019, gains on UK commercial property, land, and “property-rich entities” were also subject to taxation. Therefore, the National Regeneration Capital Gains Tax (NRCGT) is now due on the disposition of most UK real estate or land (excluding Scotland).

Non-resident Capital Gains Tax

Only gains accrued after the law was changed are subject to the higher rate; noting that rates are 18% or 28%. Therefore, the assessed valuation of a home as of April 6th, 2015 will be used to determine the associated fees.

For all other types of property and land, the reassessed valuation as of April 6, 2019 will be used.

For non-residents, the deadline to file an NRCGT tax return is 30 days after the sale of a UK primary residence, even if no tax is owed.

Liability For Non-Resident Capital Gains Tax

Partners in partnerships and trusts that hold property that are not UK residents are also subject to NRCGT. You are still responsible for your debts even though you have never set foot in the UK and have no plans ever to return.

As of April 2019, the capital gains tax on the sale of a UK residence owned through a non-resident company structure will be replaced by the UK corporation tax.

For this tax year, the capital gains tax allowance in the United Kingdom is £12,300 for individuals and partnerships and £6,150 for most trusts.

In addition, the sale of a primary dwelling in the United Kingdom may qualify you for private residence relief (PRR). You can keep all or any of the profit made on the sale if the property is, or has been your primary or only residence.

UK Private Residence Relief

To qualify for PRR, you must have lived in the property as your principal residence for at least 90 days during the previous UK tax year. The programme is open to both foreigners selling a home in the United Kingdom and residents of that country selling a home abroad.

If you are a Portuguese resident who owns a property in the United Kingdom and spends at least 90 days there every year, you are eligible to claim that property as your primary residence. Doing so will help you avoid paying capital gains tax in the United Kingdom.

In that case, you may be considered a UK tax resident, making your worldwide income subject to UK taxation. You should consult an expert in order to evaluate your individual situation and tax implications.

Relief for main homes in Portugal

Capital gains tax on UK property owned by Portuguese citizens is likewise due in Portugal. If the entire sale price is used to purchase another primary residence in Portugal or another EU/EEA nation, the gain on the original home will be excluded.

Any tax owed must be paid within 36 months of the transaction (or 24 months beforehand). Late payment fees and interest will also be applied.

Reinvestment relief

A newly introduced relief may be especially appealing to retirees who are downsizing, as it is available only to those 65 and older.

Within six months of the sale of your primary residence, you may be eligible for a tax exemption if you reinvest all or a portion of the proceeds in a qualified retirement plan or insurance policy.

This option can provide a number of advantages, including tax savings, the ability to hold a variety of currencies in a single portfolio (for example, Euros, Great British Pounds, and United States Dollars), and a greater degree of control over your estate’s final disposition.

Build your financial plan with Holborn Portugal

Ultimately, the greatest strategy and the least amount of taxes can be accomplished through early and thorough planning for a property sale. Consult a cross-border tax expert in order to take full advantage of all tax exemptions and deductions. This is important not only for the security of your property, but also for having a great start in your new life in Portugal.

Those who use Holborn can take advantage of our tailored services across the world. Knowing that you and your loved ones are in excellent hands is important, and you can rest easy knowing that our professionals employ only the most trustworthy investment and tax-efficient solutions. Get in touch with us today. 

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