Double tax treaty UK/Portugal

If it is worth is then I recommend you contact an experienced international tax advisor with a good reputation. I only dealt with BDO in Lisbon, but there are definitely competitors.

This is a very specific question. You should use a professional for this. 

The application of double tax treaties and Portuguese tax law can be intricate. It is highly recommended that you engage a Portuguese tax advisor or an accountant specializing in international tax.

Some highlights about that issue:

Key Points for Non-Residents Selling Property in Portugal (as of March 2024):

Taxation in Portugal for Non-Residents:

Since January 1, 2023, non-residents are generally taxed on capital gains from Portuguese property sales under the same rules as residents.

Only 50% of the capital gain is considered taxable income.

This 50% is then added to your other annual taxable income (even if not taxed in Portugal) and taxed at Portugal's progressive IRS (personal income tax) rates, which range from 13.25% to 48% (for 2024).

You can deduct certain costs from the sale proceeds to reduce your taxable gain, including:

1. Acquisition costs (e.g., purchase price, IMT - municipal property transfer tax, stamp duty, notary fees).
2. Costs of property improvements/renovations carried out in the last 12 years (you'll need documented invoices with your tax number).
3. Real estate agency fees.
4. Energy certificate costs.

The Portugal-UK Double Tax Treaty:

The UK has a Double Taxation Treaty with Portugal to prevent you from being taxed twice on the same income.

Crucially, for immovable property gains (like selling an apartment), the treaty states that the gain "may be taxed in the Contracting State in which such property is situated." This means Portugal, as the source country of the property, has the right to tax the gain.

Since you are non-resident in Portugal, and have already paid tax in the UK, the treaty's mechanism to avoid double taxation will come into play. Generally, this works via the tax credit method.

Tax Credit Method: Where income can be taxed in both countries under the terms of the treaty, each country applies its own rules in calculating the taxable income and actual tax payable. The tax paid in the source country (Portugal, in this case) is offset against the tax liability in your country of residence (the UK).

1. If the tax due in the UK is more than the amount owing in Portugal, you will not pay any further tax in the UK (and you won't get a refund of the difference from the UK).

1. If the tax payable in Portugal is higher than that payable in the UK, you pay tax in the UK (as you already have) and then pay the difference in Portugal.           

Given that you've already paid tax in the UK, when you declare the gain in Portugal, you will need to indicate that you wish to benefit from the double taxation treaty.

As the property was situated in Portuguese territory, Portugal has first bite at the apple so to speak. You submit the Portuguese income tax return (as a non resident), and Portugal will tax it according to its rules (Selling Price  - Cost (adjusted for inflation) - capital costs last 12 years - costs on Purchase - costs on sale).

As a UK resident, you should also declare this in the UK according to its rules. The UK will then tax you, and then you claim the Portuguese tax charge against the UK tax liability. If the UK liability is higher, you then have to pay the difference. If lower, obviously you will not get a refund from HMRC.

What if he doesn't say anything to the UK ? Why should he pay anything since it's in Portugal ?

He can proceed with this, but be advised that this information is shared with HMRC. May take a few years for HMRC to catch up though