The taxation of capital gains arising from the disposal of residential properties underwent significant changes in 2026, with the temporary extension of the tax exclusion regime for reinvestment to properties intended for the residential rental market.
A recent Binding Ruling issued by the Portuguese Tax and Customs Authority (“Tax Authority”) has now clarified a particularly relevant issue for taxpayers: the proceeds obtained from the sale of a main residence may be divided and simultaneously reinvested in the acquisition of a new main residence and in the acquisition of another property intended for residential rental.
This position is set out in the Binding Ruling concerning Case No. 30947, subject to a decision dated 30 July 2026, and is particularly significant as it clarifies the interaction between the regimes provided for in paragraphs 5 and 7 of Article 10 of the Portuguese Personal Income Tax Code (“PIT Code”).
1. Tax exclusion through reinvestment in a new main residence
The traditional regime provided for in paragraph 5 of Article 10 of the PIT Code allows the capital gain arising from the disposal of a property used as a main residence to be excluded from taxation, in whole or in part, where the corresponding disposal proceeds are reinvested in a new main residence.
The application of this regime is subject to compliance with several requirements.
First, the property disposed of must have constituted the main residence of the taxpayer or their household, a circumstance evidenced, in particular, by the taxpayer’s registered tax address, during the 12 months preceding the disposal or, where earlier, the date of the reinvestment, without prejudice to the exceptional circumstances provided for by law.
Furthermore, the property acquired must be located in Portugal, in another Member State of the European Union or in a State belonging to the European Economic Area, in the latter case provided that an exchange of information on tax matters exists. The new property must also be allocated as the main residence of the taxpayer or their household within 12 months following the reinvestment.
The purpose of this regime is well established: to ensure that the replacement of a taxpayer’s main residence does not, in itself, trigger the immediate taxation of the real estate capital gain, provided that the proceeds from the disposal are redirected towards the acquisition of a new main residence and the conditions established by law are met.
2. The new reinvestment regime for properties intended for residential rental
The main development arises from Decree-Law No. 97/2026, of 20 May, which introduced a new paragraph 7 into Article 10 of the PIT Code.
This is a temporary regime, applicable to disposals carried out between 1 January 2026 and 31 December 2029, which extends the possibility of excluding capital gains from taxation where the disposal proceeds are used to acquire properties intended for the residential rental market.
According to the interpretation set out in the Binding Ruling, this regime covers not only gains arising from the disposal of a main residence referred to in paragraph 5 of Article 10 of the PIT Code but also gains arising from the disposal of other residential properties, provided that the disposal proceeds are used to acquire other properties intended for residential rental and the remaining statutory conditions are met.
The new regime nevertheless imposes particularly stringent conditions.
The property acquired must be located in Portugal and must be subject to a residential lease agreement within six months, except where there is a justified impediment, in particular due to the need to carry out urgent works, and only for the period strictly necessary.
In addition, the property must remain rented for at least 36 months, whether consecutive or non-consecutive, during the first five years. During that period, the maximum rent limits established under Decree-Law No. 97/2026 must also be complied with.
Finally, the property acquired may not be disposed of, whether for consideration or free of charge, during the legally established five-year period.
We are therefore dealing with a tax benefit that seeks to use the taxation of capital gains as an instrument to encourage properties to be made available on the residential rental market, but the continued application of which depends on compliance with a set of conditions extending significantly over time.
3. Is it possible to combine the two regimes?
It is precisely in this respect that the Binding Ruling is of particular interest.
In the case under analysis, the taxpayer intended to sell her main residence and use the corresponding disposal proceeds for two separate investments: part for the acquisition of a new main residence and part for the acquisition of a second property intended for residential rental.
The question was therefore whether the regimes provided for in paragraphs 5 and 7 of Article 10 of the PIT Code could be applied cumulatively in respect of the same disposal.
The Tax Authority answers this question in the affirmative.
According to the Tax Authority, there is no legal impediment to dividing the proceeds from the sale between the two reinvestment options. Accordingly, part of the disposal proceeds may be invested in a new main residence and another part in a property intended for residential rental.
This solution is particularly relevant because the possibility of combining the two regimes is not expressly provided for by the wording of the law.
The Tax Authority itself acknowledges this circumstance but considers that neither provision establishes any incompatibility between the two regimes. In addition, it finds support for this interpretation in paragraph 12 of Article 10 of the PIT Code, which provides that, in cases of partial reinvestment, the tax exclusion applies only to the proportionate part of the gains corresponding to the amount actually reinvested.
4. An interpretation favourable to the taxpayer — but with autonomous regimes
The position adopted by the Tax Authority appears to us to be consistent with the structure and purpose of both regimes.
In the absence of a provision requiring exclusivity between the two reinvestment options, it would be difficult to justify a situation in which a taxpayer who allocated the entire disposal proceeds to only one of the permitted purposes could benefit from the tax exclusion but would partially lose that benefit merely because the same amount was divided between two purposes that the legislator itself has decided to incentivise for tax purposes.
The interpretation adopted therefore allows for greater flexibility in the use of the disposal proceeds.
For example, a taxpayer who sells their main residence may use part of the proceeds to acquire a new residence and allocate the remainder to the acquisition of a property for residential rental, benefiting, in principle, from the tax exclusion corresponding to the amounts effectively reinvested for each of those purposes.
This is probably the most important practical aspect of the Binding Ruling, as the Tax Authority’s position is particularly relevant for taxpayers wishing to reorganise their real estate assets following the sale of their main residence.
However, combining the benefits does not mean that the two regimes are merged.
The Tax Authority expressly clarifies that the requirements must be assessed separately and independently in respect of each portion of the amount reinvested.
This means that the portion allocated to the new main residence must independently comply with all the requirements laid down in paragraph 5 of Article 10 of the PIT Code, while the portion allocated to the rental property must comply with the specific requirements set out in paragraph 7.
Failure to comply with the conditions applicable to one of the two components may therefore jeopardise the tax exclusion corresponding to that portion of the reinvestment, without necessarily affecting the other option, provided that the latter has independently satisfied its respective requirements.
5. Partial reinvestment: the importance of proportionality
Another relevant aspect concerns situations in which the taxpayer does not reinvest the entire disposal proceeds.
The Binding Ruling confirms that the exclusion of the capital gain from taxation applies proportionately to the amount actually reinvested.
Accordingly, if only part of the disposal proceeds is allocated to the new main residence and/or to the property intended for residential rental, only the corresponding proportion of the gain may benefit from the tax exclusion.
Where the two regimes are used simultaneously, it must be possible to clearly identify the portion of the disposal proceeds allocated to each reinvestment option, since the Tax Authority itself considers that the tax exclusion should be calculated by reference to the proportion allocated to each regime.
This circumstance makes it advisable to maintain appropriate documentation of the financial flows associated with the different acquisitions, particularly where they take place at different times.
6. Deadlines remain crucial
Despite the differences between the two regimes, there are common timing and reporting requirements.
According to the Binding Ruling, the reinvestment must take place within the period between the 24 months preceding and the 36 months following the date of the disposal.
The taxpayer must also expressly declare the intention to reinvest, even if only partially, in the income tax return for the year in which the disposal takes place, identifying the respective amounts.
In the case of an investment intended for residential rental, these requirements coexist with the specific obligations applicable under that regime, namely the conclusion of the lease agreement within the statutory deadline, maintaining the property on the rental market for the required minimum period, compliance with the maximum rent limits and the prohibition on disposing of the property for five years.
Consequently, the tax analysis should not be limited to the time of the sale or acquisition of the properties: entitlement to the benefit also depends on the taxpayer’s conduct in the years following the reinvestment.
7. Some practical considerations
Despite the favourable position adopted by the Tax Authority, it should be borne in mind that a Binding Ruling is issued in relation to a specific situation and on the basis of the facts presented by the respective applicant.
Furthermore, the new reinvestment regime for properties intended for residential rental is subject to conditions whose fulfilment is not determined solely at the time of acquisition.
The continued application of the tax benefit may depend on circumstances arising over the following five years, including the effective maintenance of the property on the rental market, compliance with the minimum rental period, the applicable rent limits and the non-disposal of the property.
The combined application of the two regimes therefore makes it particularly important to carry out a prior analysis of the transaction and subsequently monitor compliance with the applicable conditions, as well as to correctly identify the portions of the disposal proceeds allocated to each reinvestment option.
In this context, a prior tax analysis of the disposal and reinvestment may be crucial in order to properly structure the transaction, assess the possibility of combining the two regimes and ensure compliance with the respective requirements.
The Tax Law team at Belzuz Abogados, S.L.P. – Portuguese Branch has experience in advising on real estate transactions and analysing the taxation of capital gains under Personal Income Tax and can provide advice on the structuring and implementation of these transactions.