When selling real estate in Portugal, one of the most important tax questions concerns which costs may be deducted when calculating capital gains tax.
The issue becomes particularly relevant for owners who incur legal, technical, and transactional costs during the sale process. While some expenses are widely accepted as deductible, others remain controversial.
A growing legal debate in Portugal concerns whether legal fees paid to lawyers during a property sale can be treated as deductible expenses for tax purposes.
The Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira – AT) has adopted a restrictive interpretation. However, the Portuguese tax arbitration courts, particularly the Centre for Administrative Arbitration (CAAD), have increasingly accepted a broader interpretation.
This divergence creates uncertainty for taxpayers and property sellers seeking to optimise their tax.
Understanding Capital Gains Tax on Property Sales in Portugal
Under Portuguese Personal Income Tax rules (IRS – Category G), capital gains from real estate arise from the difference between:
- The sale value of the property.
- The acquisition value.
- Adjustments permitted under Articles 44.º to 50.º of the Portuguese Personal Income Tax Code (CIRS);
- Deductible expenses directly connected to the acquisition and sale.
The key legal provision is Article 51.º, paragraph 1, subparagraph a) of the CIRS.
This rule allows taxpayers to deduct:
“Expenses necessary and effectively incurred, inherent to the acquisition and disposal of the property.”
The interpretation of this wording is critical when determining deductible expenses when selling property in Portugal.
Common Deductible Expenses When Selling Property in Portugal
Several costs are generally accepted by the Portuguese Tax Authority as deductible when selling real estate. These commonly include real estate brokerage commissions, notary expenses, land registry costs, energy certification expenses, certain administrative fees, and qualifying improvement works carried out within the legally accepted timeframe.
The controversy arises when taxpayers seek to deduct legal advisory fees incurred in negotiating, structuring, or formalising a transaction. Unlike brokerage commissions or registry costs, legal fees remain an area of disagreement between the Portuguese Tax Authority and arbitration courts.
The Portuguese Tax Authority’s Position on Lawyer Fees
In doctrinal ruling Process No. 27662, dated January 10, 2025, the Portuguese Tax Authority analysed whether analysis fees paid to a lawyer assisting with a property sale could be deducted.
The case concerned a non-resident taxpayer who sold Portuguese property and incurred legal costs in connection with the transaction.
The AT concluded that lawyer fees generally do not qualify as deductible expenses when selling property in Portugal.
Why the Tax Authority Rejects Lawyer Fees
The Tax Authority bases its position on a strict interpretation of Article 51.º of the Personal Income Tax Code. According to this interpretation, a deductible expense must be necessary, effectively incurred, and inherently linked to the disposal of the property.
A recurring issue identified by the AT concerns the wording of invoices. Generic descriptions such as “legal services” or “professional assistance” may not sufficiently demonstrate a direct connection between the expense and the property transaction. In the Authority’s view, taxpayers must prove not only that the expense was incurred, but also that it was inseparable from the sale itself.
The most restrictive aspect of the AT’s interpretation concerns the meaning of “necessary.” The Authority generally argues that legal assistance is optional rather than indispensable. Because a property sale can theoretically occur without legal representation, lawyer fees are often treated as the seller’s personal choice rather than deductible transaction costs.
Under this interpretation, legal fees are treated as discretionary expenses rather than qualifying deductible costs for the capital gains calculation.
The CAAD Tax Arbitration Courts Take a Different View
Portuguese tax arbitration courts have increasingly rejected this restrictive interpretation.
Several decisions issued by the Centre for Administrative Arbitration (CAAD) suggest that lawyer fees may indeed qualify as deductible expenses when selling property in Portugal.
Arbitration courts tend to adopt a broader, more economic interpretation of the law.
CAAD Decision No. 676/2020‑T: Legal Fees Accepted
In CAAD Case No. 676/2020‑T, decided on June 25, 2021, the tribunal concluded that legal fees paid for assistance during a property sale were deductible.
The tribunal held that:
Legal fees related to the sale of property fall within expenses inherent to the disposal of the asset.
The court emphasised taxation based on net income.
Under this principle, taxpayers should be taxed only on the true economic gain generated by the transaction.
The tribunal rejected the idea that an expense must be legally mandatory to qualify.
CAAD Decision No. 734/2022‑T: Broad Interpretation of Necessary Expenses
In CAAD Case No. 734/2022‑T, dated November 30, 2023, the arbitration tribunal reinforced a broader interpretation of deductible costs.
The court recognised that, as real estate agency commissions, lawyer fees, and legal support related to the sale process may be deductible, provided there is a clear and demonstrable connection to the transaction itself.
The tribunal rejected the argument that only expenses which are legally mandatory or inseparable from the sale should be accepted. Instead, it emphasised that the criterion is whether the cost is economically linked to the transaction and incurred to facilitate its completion.
CAAD Decision No. 471/2025‑T: Strong Support for Deductibility
One of the most recent arbitration decisions, CAAD Case No. 471/2025‑T, decided on February 11, 2026, further strengthened the taxpayer-friendly position.
The case involved the sale of a rural property for approximately €1.1 million.
The tribunal accepted both:
- Real estate mediation fees;
- Lawyer fees amounting to €17,300.
The court clarified that Article 51.º does not require “indispensability.”
Instead, it requires only that the expense be necessary and connected to the transaction.
According to the tribunal:
If there is no doubt regarding the relationship between legal services and the negotiation or formalization of the sale, deductibility should not depend on subjective judgments about whether the lawyer was indispensable.
This decision significantly strengthens the possibility of deducting legal fees when selling property in Portugal.
The Split Within Portuguese Tax Jurisprudence
Despite several favourable arbitration rulings, not all CAAD decisions agree.
In CAAD Case No. 646/2022‑T, decided on June 29, 2023, the tribunal adopted a more restrictive approach.
The court held that deductible expenses must have such a close connection to the sale that the transaction would be impossible without them.
Under this stricter interpretation, lawyer fees remain nondeductible because a sale can, in theory, occur without legal assistance.
This means there is currently no complete judicial consensus.
AT vs CAAD: A Real Legal Conflict
The conflict between the Portuguese Tax Authority and CAAD creates uncertainty.
The Portuguese Tax Authority Generally Accepts:
- Property transfer taxes;
- Registry and notary expenses;
- Energy certificates;
- Real estate brokerage commissions;
- Certain documented acquisition and sale costs.
The Tax Authority Generally Rejects:
- Lawyer fees;
- Advisory costs are considered optional.
- Expenses not considered indispensable.
CAAD Increasingly Accepts:
- Lawyer’s fees are directly linked to the sale.
- Negotiation support costs;
- Legal drafting and contract formalisation cosformalisationthat clearly contributed to completing the transaction.
How to Strengthen Deductibility Claims
Taxpayers who intend to claim legal fees as deductible expenses should place significant emphasis on documentation.
Invoices should clearly identify the connection between the legal service and the property transaction. Descriptions such as “legal services relating to the sale of property,” “negotiation of promissory purchase agreement,” or “drafting and formalisation of documents” provide a stronger evidentiary basis than generic legal descriptions.
In addition to invoices, supporting documentation should be retained. Engagement letters, correspondence relating to the sale, draft agreements, legal opinions, and other transactional materials may help establish a direct connection between the legal work and the disposal of the property.
Taxpayers should also be prepared for the possibility that the Portuguese Tax Authority may challenge the deduction. In such cases, an administrative complaint, judicial review, or a tax arbitration proceeding may be necessary to defend the position taken on the tax return.
Practical Implications for Property Sellers
For taxpayers selling high-value properties, the deductibility of legal fees can materially reduce taxable capital gains.
Where lawyer fees are substantial, litigation may be economically worthwhile.
For smaller transactions, some taxpayers may prefer to adopt the Tax Authority’s conservative interpretation to avoid disputes.
The decision often depends on:
- Transaction value;
- Amount of legal fees;
- Litigation appetite;
- Risk tolerance.
Final Thoughts on Deductible Expenses When Selling Property in Portugal
The debate surrounding deductible expenses when selling property in Portugal continues to evolve.
The Portuguese Tax Authority remains conservative and generally refuses to allow lawyer fees to be deducted.
However, a growing body of arbitration decisions suggests that legal fees may qualify when properly documented and directly connected to the sale.
Until the Portuguese Supreme Administrative Court issues a definitive ruling specifically addressing lawyer fees in real estate capital gains calculations, taxpayers face a divided legal landscape.
The safest approach is to ensure robust documentation and seek professional tax advice before filing a return.
For sellers involved in high-value transactions, understanding the distinction between the Tax Authority’s position and arbitration case law may significantly impact the final tax burden.
This article is provided for informational and educational purposes only and does not constitute legal, tax, or accounting advice. Tax treatment depends on the specific facts of each transaction, the taxpayer’s residency status, documentation available, and the interpretation adopted by the Portuguese Tax Authority or competent courts.
Taxpayers should seek individualised advice before claiming deductible expenses in relation to property sales in Portugal.
Portuguese tax law is subject to amendment, administrative reinterpretation, and evolving jurisprudence.
Miguel Pinto-Correia holds a Master Degree in International Economics and European Studies from ISEG – Lisbon School of Economics & Management and a Bachelor Degree in Economics from Nova School of Business and Economics. He is a permanent member of the Order of the Economists (Ordem dos Economistas)… Read more
