I have sold my house .... What's next?

In the middle of the period for submitting tax returns for 2023, it's important to emphasise the need to declare some types of income that are often left undeclared.

The sale of a house, or any property for that matter, is subject to a declaratory obligation. This obligation to declare applies to any sale, regardless of whether it results in a capital gain or a loss. When the sale price is higher than the purchase price plus the various expenses accepted by the tax authorities we have a taxable gain. When the purchase price and accepted expenses are higher than the sale price, we have a capital loss.

Today we're going to focus on the sale of a property, i.e. a second home. The rules are similar for other types of property when it is not the permanent home, i.e. the tax residence.

The sale of a property is formalised through the so-called deed of sale, which can take place at a notary's office, at the land registry office, or at a lawyer's or solicitor's office.

One question that is often asked is how the declaration is made. In other countries, the tax is assessed at the time of sale, for example in France. In Portugal, the sale of the property is declared at the yearly Income tax return, at at the same time as the other income obtained in the same period (if any).

The tax is assessed together with this income. Until 2022, capital gains were taxed according to residence. When a resident sells a property, only 50% of the value of the capital gain is subject to income tax. Non-residents were taxed on the entire capital gain. After many years of litigation, particularly with the decision of the European Court of Justice in 2006, the law was finally changed.

Since 2023, the rate applicable to real estate capital gains has also been progressive for non-residents, which means that the higher the result of the real estate capital gain, the higher the tax rate. The need for information to determine the tax rate has also been equalised, since non-resident taxpayers usually only have this income to declare. Therefore, in order to determine the tax rate to be applied, it is essential to indicate the income obtained and declared in your country of residence.

It should be emphasised that every year many non-resident taxpayers fail to submit their income tax return relating to the sale of property they own in Portugal.

Failure to comply on time will result in fines and possible interest on late payment and compensatory interest when there is tax to be paid on the gain.