Photo of Pedro Simões, the Founding Partner at ACQO that specialises in providing accounting services and advice on capital gains, etc

To rent or sell – Capital Gains and its impact

Text by ACOQ

The property market is one of the most wanted options for private and corporate investors. Property investment has different dimensions – you can buy a house to live in, but at the same time, due to the increase of movement into jobs in different locations, living is a part of the equation where you must consider the impact on your financial life that any change of location will have.

Taxation has a huge impact on decisions you need to make, but the law doesn’t have the flexibility of life nowadays. When you buy a house as primary habitation, you can eliminate the tax on the capital gains when reinvesting in a new primary habitation (even in another EU country). However, if you want to keep it as an investment, then you will be subject to the taxes as a second home or commercial, industrial property or land.

As an investor you can choose to rent or sell.  Capital Gains tax has now changed after many years of dispute that started in 2006 with the Hollmann case. From 2023 the law states that the capital gain on a property sale is taxable on 50% of the gain for residents and non-residents.

Until 2022, non-residents were being taxed at 100% of the gain and had to dispute the tax with the tax authorities. The tax rate for non-residents is now 14% of the gain. For residents, the tax rate will be a progressive rate between 7.25% and 24%.

The Algarve is the perfect place for a second home, where the summer can pay for your house. Renting long term or short term is always the question. Short term has a better tax regime where you as a non-resident can have a very low tax of 8.75% on the rentals, and at the same time allows you to have the flexibility to use the house. Long term has less flexibility and a higher tax at 28%. Taxes have a huge impact on property investment and each situation needs to be analysed on its own merit.

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