What are capital gains and how are they taxed in Portugal?

What are capital gains?

A capital gain is the profit you make when you sell an asset for more than you paid for it¹. If you bought shares for €10,000 and sold them for €15,000, you made a capital gain. In plain terms, it is the profit on the trade, and it is that profit, not the full sale amount, that is taxed.

When the asset is a security, shares, ETFs (exchange-traded funds), investment funds, bonds or crypto-assets, we talk about securities capital gains. In Portugal, these are Category G income for IRS (capital increments)¹. If you sold at a loss, you have the opposite: a capital loss.

How do you calculate capital gains on shares?

The formula is straightforward²:

Capital gain = sale value − purchase value − costs

Costs are the expenses directly tied to the buy and sell: the broker commissions and stamp duty. Subtracting them lowers the taxable gain, so they are worth tracking.

One important detail: what counts for IRS is not each isolated sale, but the yearly balance, gains minus losses of the same type². If in one year you had a €5,000 gain on one stock and a €2,000 loss on another, the taxable balance is €3,000. You can estimate the tax on each trade in our capital gains calculator.

What is the capital gains tax rate?

The gain is taxed by default at an autonomous rate (also called the special or flat rate) of 28%³. In practice:

Tax = capital gain × 28%

This is the general rule for most resident investors. It is the same rate that applies to the interest on a term deposit or on savings certificates, the State treats capital income in a similar way.

What is aggregation (englobamento)?

Instead of the 28%, you can opt for aggregation (englobamento): adding the gain to your other income (employment, pensions, etc.) and being taxed at the progressive IRS rates, which rise in brackets³.

When does it pay off? As a rule, when your marginal IRS rate is below 28%, more likely on lower incomes. For higher incomes, the 28% is usually better. Since the decision depends on your numbers, the honest way to decide is to model both scenarios: in the capital gains calculator you can swap the 28% for your marginal rate and compare the tax.

There is one case where aggregation stops being optional: when the assets were held for less than 365 days and the taxpayer's taxable income reaches the top IRS bracket. In that case, aggregation is mandatory.

Do I pay tax if I sell at a loss?

No. If you sell for less than you paid, you have a capital loss and there is no tax to pay. Better still, that loss is not wasted².

• It can reduce the tax on other gains of the same type realised in the same year.
• If you opt for aggregation, the loss can be carried forward for five years, offset against future gains.

This is why many investors consider tax-loss harvesting, realising losses at year end to offset gains. It is a decision to take carefully and, ideally, with professional advice.

Worked example

Suppose you bought shares for €10,000 and sold them for €15,000, paying €100 in commissions and stamp duty:

• Capital gain: 15,000 − 10,000 − 100 = €4,900.
• Tax (28%): 4,900 × 0.28 = €1,372.
• Net gain: 4,900 − 1,372 = €3,528.
• Total received: 15,000 − 100 − 1,372 = €13,528.

If your marginal IRS rate were, say, 13%, aggregation would lower the tax to €637. Test your own case in the capital gains calculator, which shows the tax and the net gain line by line.

What about property capital gains?

Capital gains on selling property follow different, more complex rules: only 50% of the gain is taxed, there is mandatory aggregation (progressive rates), the purchase value is adjusted by a monetary devaluation coefficient, and there are exemptions, such as reinvestment in your own permanent home². This calculator and article cover securities capital gains (shares, ETFs and funds); property gains deserve a dedicated tool.

Where do I report capital gains for IRS?

Securities capital gains are reported in Anexo G of the Modelo 3 IRS return, stating, for each security, the dates and values of acquisition and disposal, as well as the costs incurred¹. Many brokers provide an annual summary that makes filing easier. If you are unsure about your specific situation, consult a certified accountant or the Portal das Finanças.