Capital gains exemption for reinvestment: the sale of second homes now qualifies for the regime.

The Government has approved one of the most significant tax changes of recent years in the field of real estate taxation.

With the entry into force of Decree-Law No. 97/2026 of 20 May, it has become possible, in certain circumstances, to benefit from the exclusion from taxation of capital gains obtained on the sale of a second home or of another residential property, provided the sale proceeds are reinvested in property intended for residential letting.

Until now, this possibility was in practice limited to the sale of the taxpayer's own permanent home, provided the proceeds were reinvested in the acquisition of a new own permanent home.

From 1 January 2026, this rule has been considerably extended, creating a tax planning opportunity for property owners.

#What has changed?

Before the new regime came into force, anyone selling a second home, a holiday home or an inherited property was, as a rule, liable to personal income tax (IRS) on the capital gains obtained.

Under Decree-Law No. 97/2026, gains obtained on the sale of other residential properties may also benefit from the exclusion from taxation, provided the conditions laid down by law are met.

This is a significant change, as there is now a tax incentive aimed at investment in housing for the rental market.

#Who does it apply to?

The new regime applies to taxpayers who sell residential property, even where it is not their own permanent home.

The following situations, among others, may therefore be covered:

• the sale of a second home;
• the sale of a holiday home;
• the sale of an inherited residential property;
• the sale of a flat previously used as a residence.

The change applies to transfers carried out between 1 January 2026 and 31 December 2029.

#What are the requirements to qualify for the exemption?

The exclusion from taxation is not automatic.

The law requires several conditions to be met cumulatively.

#1. Reinvestment of the sale proceeds

The first requirement is the reinvestment of the realisation value, that is, the amount obtained on the sale, less the repayment of any loan taken out to acquire the property sold.

It should be stressed that the law does not require only the capital gain to be reinvested, but rather the sale value, after deduction of any outstanding mortgage loan.

Where only part of that amount is reinvested, the exclusion from taxation will be proportional to the amount reinvested.

#2. Acquisition of property for residential letting

The reinvestment must be made in acquiring ownership of one or more properties located in Portugal and intended to be let for housing purposes.

Acquiring a property is not sufficient in itself.

The purpose of the investment must necessarily be residential letting, under the terms laid down by law.

#3. Maximum rent limit

During the first five years, the property acquired must be let at a monthly rent that does not exceed the legal limit applicable to rents considered moderate.

At present, that limit corresponds to 2.5 times the guaranteed monthly minimum wage set for 2026, that is, €2,300.00 per month, without prejudice to future statutory updates.

#4. Conclusion of the lease agreement

The lease agreement must be entered into within six months of the reinvestment or of the realisation of the capital gain, whichever is later.

In addition, the property must remain let for at least 36 months, consecutive or otherwise, within the first five years.

#What is the deadline for reinvestment?

The legislator has given the taxpayer some flexibility.

The reinvestment may take place:

• within the 24 months preceding the sale of the property; or
• within the 36 months following the transfer.

It is therefore possible to acquire the rental property first and sell the second home afterwards, provided the statutory time limits are observed.

#Is it possible to reinvest only part of the amount?

Yes, the law expressly allows partial reinvestment.

In that case, only the corresponding part of the capital gains will benefit from the exclusion from taxation, with the proportional share that has not been reinvested remaining subject to personal income tax (IRS).

#What happens if the requirements cease to be met?

Retaining the tax benefit depends on compliance with the conditions laid down by law.

The taxpayer may therefore lose the exclusion from taxation, in particular where they:

• fail to enter into the lease agreement within the statutory time limit;
• charge a rent above the legal limit during the first five years;
• fail to keep the property let for the minimum period required;
• sell the property acquired before five years have elapsed.

In such cases, the capital gain previously excluded from taxation may become taxable, together with the corresponding compensatory interest, under the terms of the Personal Income Tax Code (CIRS).

#A change that calls for prior planning

This change represents a significant opportunity for owners wishing to sell a second home without bearing the tax impact normally associated with capital gains.

However, the regime is subject to strict requirements, specific time limits and obligations that extend over several years.

An error in the way the reinvestment is made, in the conclusion of the lease agreement or in compliance with the legal conditions may result in the loss of the tax benefit.

For that reason, before selling a property or reinvesting the proceeds, it is advisable to obtain legal and tax advice, so that the transaction is properly structured and all statutory requirements are met.

This is a technical note published for information purposes. It does not constitute legal advice on any specific case. For such advice, please contact the firm.