Until now, the capital-gains exclusion for reinvestment was, in practice, reserved for a taxpayer’s own permanent home. Decree-Law no. 97/2026 significantly widens the mechanism, excluding from taxation capital gains reinvested in the acquisition of property intended for residential letting within the affordable-rent limits.
In plain terms: an owner who sells a property and reinvests the realisation value in buying another to let may be exempt from income tax on the gain. The benefit is, however, conditional and reversible. The rules deserve close attention.
How the exclusion works
The law excludes the gains from taxation provided three conditions are met cumulatively:
1. Reinvestment of the realisation value. The realisation value — less the repayment of any loan taken out to acquire the property sold — must be reinvested in acquiring ownership of other property, located in Portugal, intended for residential letting, with monthly rent not exceeding the maximum limits defined under article 2(2) and (3) of Decree-Law no. 97/2026.
2. Time limit. The reinvestment must be made between 24 months before and 36 months after the date of realisation.
3. Statement of intention. The taxpayer must declare the intention to reinvest, even partially, stating the amount in the tax return for the year of the sale.
Where the conditions are met, the gain is not taxed — in full or, in the case of partial reinvestment, in proportion to the amount reinvested.
The traps: when the benefit is lost
This is where many investors stumble. The law lists situations in which there is no benefit, and the gain is deemed obtained in the year the condition fails:
• No residential tenancy agreement within the rent limits is entered into within six months of the reinvestment (or of realisation, if later), save for justified impediment — notably urgent works — and only for the strictly necessary period.
• The property is not subject to residential tenancy agreements for at least 36 months, consecutive or not, during the first five years from the reinvestment (or realisation, if later).
• The property is let at rent above the limits during those first five years.
• The property is transferred, for consideration or free of charge, within five years of the reinvestment (or realisation, if later).
In other words, the legislator did not intend to reward speculative purchases, but the effective and lasting placement of housing on the affordable rental market. The benefit follows compliance; break the commitment and the tax returns.
Practical and commercial value
For investors, this exclusion opens a route to portfolio rotation without the tax cost of exiting. An owner holding an appreciated property who wishes to redirect capital into rental housing can do so without capital-gains tax consuming a relevant part of the sale proceeds. Combined with rental income taxed at 10% and the exemptions of the Simplified Affordable Letting Regime, the operation becomes attractive both on entry and in operation.
There is, however, a lock-in effect: for five years the reinvested property is tied to letting within the rent limits. Anyone needing short-term liquidity, or flexibility to sell, should weigh that commitment.
What to do before selling
Proper use of the regime begins before the sale, not after. It matters to calculate the potential gain and the amount to reinvest; to identify the target property and confirm that the projected rent respects the caps; to plan the calendar within the 24/36-month window; and to ensure the intention to reinvest is stated in the tax return for the year of sale. The documentation of the subsequent tenancy must be prepared carefully, because it is what consolidates the exemption.
Selling and reinvesting? Paulo Silva Silva, Lawyer, helps structure the operation and coordinate the capital-gains framing with your tax adviser, before signing. Book a meeting or contact geral@advpaulosilvasilva.com · +351 916 055 901.
This article is general in nature and does not constitute legal or tax advice. Decree-Law no. 97/2026, of 20 May, and the specific conditions of the exclusion should be confirmed in the version in force in the Diário da República before any decision.