Thousands of Portuguese people sell their permanent homes and have to pay tens of thousands of euros in capital gains to the tax authorities. In this Savings Account, we will introduce you to a little-known alternative for retirees or those over 65, which allows them to avoid this tax.
Having your own home is the dream of most Portuguese people. But, if one day you sell that house at a profit, you will have to pay capital gains to the tax authorities. The best-known way to be exempt from this tax is to reinvest the entire sale in another permanent home within three years. If you do not do so, you will have to pay the State, at most, around 25% of all profits obtained. We are sometimes talking about tens or even hundreds of thousands of euros.
This situation is especially serious and unfair when the house is soldnot for a real estate business with the aim of making money, but for need to move to a smaller house or with better mobility conditionsfor pay health expenses or a nursing home.
And, when selling without subsequently buying an equal or more expensive house, they have to hand over very high values to the State on a platter.
How can I be exempt from tax on the sale of my house?
Since 2019, there is a alternative to avoid paying these capital gains: just take the money from the sale (in whole or in part) and put it in a life insurance or pension fundbut with specific conditions.
Let’s do the math now, but first some important notes: this tax exemption is only for over 65 years old or for those who are already retired (self or spouse), regardless of age. You can put everything in these financial tools or buy a smaller house and reinvest whatever is left in these specific products.
These savings and investment tools that exempt capital gains from the sale of homes are still little known in Portugal, but can now be found in banks and insurance companies such as FidelitySantander, BPI, Millennium BCPamong others, and in pension fund management companies.
So let’s get to the math
António, fictitious name, bought a house after 1990. He paid for it at the time 100.000 € and now he sold it for 650.000 €. As I still should €50,000 to the bankwould have to pay capital gains on €600,000. We are talking about €150,000 tax.
Even if you buy one smaller house or outside the city for €300,000I would still have to pay €75,000 in taxes. If you put these 300.000 € in a product of this type, pays nothing to the tax authorities and starts receiving €22,500 per yeardivided into monthly installments of €1,875 until the money runs out.
Pay attention to detail of the six months: as soon as you sell the house, you must place the money in an insurance or pension fund with these characteristics. If a day passes beyond this period, loses the right not to pay capital gains.
Attention: This product is not for everyone
As you can see, you can save tens of thousands of euros in added value, but this product is not for everyone. In most cases, the capital is not guaranteed and you do not have the money available in its entirety: you receive it in installments.
In the various banks and insurance companies you will have to look for a product that suits your profiletaking into account the commissions they charge and the income of recent years.
These products have yet another advantage: if, however, the holder dieos heirs will not have to pay any tax on the total amountbecause it is an inheritance and not the sale of a house.
Ask your bank or insurance company
If you are curious, ask your bank or insurance company if they have financial products for “deaccumulation with payment of regular installments” (that’s the technical term).
Just explain that you want one investment to avoid paying capital gains on the sale of a house and they will know what you are talking about. There are already many options available. But remember that there is only six months after the sale of the house to make this decision.
