The new Mais Habitação housing law introduced a change that allows an exemption for capital gains tax (CGT) in certain circumstances when selling a secondary residence.

The new measure allows capital gains on the sale of land for construction or a secondary residence to be invested in the payment of the mortgage on a primary residence within 3 months in order to become exempt from tax on those gains.

Sales of land for construction (note, NOT rustic land) and secondary residences in 2022, 2023 or 2024 are valid for this exemption, as long as gain is used for the payment of the primary residence mortgage within 3 months. The exemption also applies to the mortgage of primary residences of direct descendents (children or grandchildren). For sales before 7th October 2023, when the new law became valid, the 3 months is taken from that date and until 7th January 2024.

If some of the capital is used to cancel a mortgage on the secondary residence property that is sold, it is not subtracted from the calculated gain. Also, if capital gains were already paid on that sale, a refund can be claimed in the case of the capital being used to cancel a primary residence property.

In the case of the capital gain from the sale of a secondary residence being higher than the amount to cancel the mortgage on the primary residence, the remaining capital will be taxed as normal.

There are two important things to note here:

• the capital gains of such sales can NOT be used to purchase a new primary residence, only to cancel the mortgage of an existing one
• in order for a property to be considered a primary residence, the new housing law made it a requirement that the owner’s fiscal address has to be established there for at least two years