Capital Gains Exemption for the Sale of Secondary Residences or Land for Construction

Law No. 56/2023 in Portugal introduces a temporary capital gains exemption for those who sell secondary properties or land for construction and reinvest the sale proceeds to pay down a mortgage on their primary residence, either for themselves or for their children. This regime represents a significant tax incentive, as capital gains on property sales are usually subject to income tax, often making selling such properties financially unattractive. The measure applies to sales completed by December 31, 2024.

The goal is to encourage the sale of inherited or vacant properties, which are often left unoccupied or in deterioration due to high tax burdens. In many cases, owners choose to keep these properties without generating income, awaiting tax relief. With this regime, by selling and using the proceeds to reduce mortgage debt, sellers can avoid paying capital gains tax, which could help stimulate the market and improve housing availability.

The measure is especially beneficial for those who inherited properties, as capital gains are calculated based on the original purchase value, often low, resulting in high taxes upon sale. For properties in co-ownership—common in inherited estates—the regime offers an opportunity for liquidity without the tax burden, particularly relevant when multiple owners must agree on a sale.

Despite the benefits, the short duration of this regime, ending in 2024, could limit its effectiveness for many who wish to take advantage of the tax exemption. The property sales process, especially in co-ownership situations, can be lengthy and may require more time for the measure to reach its full potential. Given the market context and the expected positive impact, it is suggested that the government consider extending the exemption period, allowing more properties to enter the market, enabling more people to buy primary residences, and contributing to family liquidity and mortgage debt relief in Portugal.

Source: Diário Imobiliário