# Another Portuguese Capital Gains Tax Question



## LondonStan (Feb 12, 2015)

Can any of your CGT experts help me on this matter.

I am currently resident in Portugal. I have recently sold my house in Portugal. It s my intention to return to the UK and to reinvest the proceeds from the sale in a property. I fully understand that I must purchase this UK property whilst still a resident in Portugal and thereafter will become resident in UK. I fully understand that if ALL the proceeds are reinvested in UK/EU, in a main residence there will be no CGT liability

The questions I have … 

It is my intention to invest ALL of the proceeds in this property in the UK, with 75 percent of the funds being for the purchase of the house and the remaining 25 percent used for major renovations to the property i.e. roof extension, new kitchen and bathrooms. Will this 25 percent portion, if backed with receipts for the works, be included in CGT relief. It would be my intention to carry out and complete these works within 2 years of the purchase.

My local Portuguese accountant informs me that this is not possible. It can only work if renovation work takes place on an 'existing' property in the EU/UK, not in the purchase of a 'new' property with renovations to take place. This surely cannot be the case. A friend has just asked the same question to a Lisbon based Advogado and they advise that this portion of the reinvestment can be included for CGT relief and in the purchase of an 'new' property.

Who is right ?

I have also heard that the funds from the sale of my Portugal residence must remain invested for a minimum of 5 years. Is this correct ? Am I not, having returned to the UK and say lived here for 2-3 years, sell that UK property and downsize to something smaller cheaper, without Portuguese tax authorities chasing me for CGT ?

I am also being told that different tax offices can interpret the rules differently. 

There must be a definitive answer to this situation.

Can anyone help ?


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## TonyJ1 (May 20, 2014)

According to article 10 (5) (b) of the Portuguese Income Tax Code you have 36 (not 24) months as from the date of disposal to reinvest in another main residence. 
As to the improvements question, both your accountant and lawyer could be right. In reading the legislation the condition is that the use of 'and' and 'or' in the article make the interpretation thereof confusing. There is a risk that the tax authorities could be very restrictive in their interpretation of the law - and in that case you would need a good tax lawyer to fight your case, and maybe ultimately take it to court.

As to the restriction of 5 year reinvestment, I am not aware of this condition nor can I find anywhere in the legislation. I think it is a misinterpretation of the conditions of article 10 (6) b in that it requires that in the case of construction /improvements, etc, the alterations to deeds and tax records has to be completed within 48 months of the sale of the previous home, and that the tax payer has made it his new home within 5 years of the sale.


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## LondonStan (Feb 12, 2015)

Thanks Tony for info… as stated very difficult to get a definitive answer on this issue. I can't believe I am the only person that reinvesting funds from sale of Portuguese property and hoping to use portion of the funds for major renovations on new purchase. I'm very reluctant to take on the Financas in Court, as fully aware that they will want immediate payment of the CGT and then I will have to go to Court in order to argue my case and and try to get it back. More time, cost and stress. Maybe this is why Financas make it so 'grey'.. more opportunity for tax grab!

Same recently happened with friend regarding Mansion Tax in Portugal and was made to pay Euros 10,000 immediately. He has made 3 appeals and finally had rateable value on new build house reduced to under the Euro 1 million, thus tax not applicable. He is still waiting for the return of tax paid.


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## TonyJ1 (May 20, 2014)

As regards the mansion tax, your friend is not likely to win - the rules are based on the valuation as of the previous year. It is essential that the valuations are checked / verified (I would say better to get it verified independently as sometimes the property could be undervalued).


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## LondonStan (Feb 12, 2015)

He has won .. after 3 appeals to the Camara and about Euros 2,500 paid out to Solicitors and Surveyors to assist, the rateable value of the property was recalculated and reduced to under Euros 1 million, thus Mansion Tax not applicable… BUT still waiting for return of the Euros 10,00 annual charge from the Camara.


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