Primary Residence (HPP) - Secondary Residence

In Portugal, tax legislation distinguishes between a primary residence and a secondary residence, especially regarding the treatment of capital gains from property sales. Below are the main differences and considerations for each type of residence.

Primary Residence 

Definition: A primary residence is the main home where the owner and their family habitually reside.

Capital Gains:

• Capital Gains Exemption: If you sell your primary residence and reinvest the total sale amount (minus any mortgage repayments for the purchase of that residence) in a new HPP within 36 months (3 years), you can be exempt from capital gains tax.
• Partial Reinvestment: If only part of the sale amount is reinvested, the exemption will be proportional to the reinvested amount.
• Other Conditions: The exemption applies to tax residents in Portugal and may also depend on other factors, such as the timeframe for purchasing the new residence and proof that the new residence will be the main home.

Secondary Residence

Definition: A secondary residence refers to a holiday home or any other property not used as the main residence.

Capital Gains:

• Taxation: Capital gains from the sale of a secondary residence are taxed at a rate between 14.5% and 48% on 50% of the capital gains. There is no exemption, even if the sale amount is reinvested in another residence.
• Calculation: The capital gain is calculated based on the difference between the sale price and the purchase price, adjusted for expenses and charges related to the acquisition and sale of the property.

The decision to invest in a primary residence versus a secondary residence in Portugal should be carefully considered, especially regarding the tax implications of capital gains. For a primary residence, there is a possibility of capital gains exemption through reinvestment, while for a secondary residence, capital gains are always taxed. Consulting a specialist is essential to maximize tax benefits and avoid surprises.