The dream of owning property abroad - whether that is as a retirement haven, a holiday home or as an investment asset - is something fixed in many of our minds. Additionally, many of us have a fair idea of where we’d like to buy property and how much we’d like to spend on it, but unfortunately very few of us give sufficient consideration to the extra taxes, fees and commissions that will be chargeable on top of the purchase price, throughout the duration of our ownership and upon the resale or inheritance of the property.
In this particular article we’re giving the essential financial aspects of property in Portugal covering the extra buying fees, the ongoing property related taxes and the resale or inheritance tax liabilities in Portugal - but remember, if you decide Portugal isn’t the right destination for you, it is as essential to research these extra financial details for any market you’re thinking of buying into.
Financial Aspects of Buying and Selling Property in Portugal
One of the most important things to get right from the outset is establishing a good working relationship with a competent lawyer who can guide you through the buying process and assist you in the future with any aspects of property ownership that you have difficulty with. When buying property in Portugal expect to pay around 4 – 5% of a property’s purchase price in legal fees which include not only your lawyer’s fees but those of the notano and also the land registry fees.
Once you’ve bought a given property you will be liable for the transfer tax as well which is known as imposto municipal sobre as transmissoes and which is calculated on a sliding scale depending on the market value of the property in question. It can be anywhere from 0 – 8% and if you budget for the upper end of the scale you’ll not be in for any nasty surprises!
If you buy land in Portugal on which to build your own home then the transfer tax is a straight 6.5%.
It is not usually advisable to own property in Portugal through an offshore company as anything owned through such a mechanism will attract 15% transfer tax.
If you become tired of living in Portugal and want to resell your real estate asset through an estate agent you’ll be liable for anything between 5 and frighteningly 10% of the property’s value in commission – be prepared to negotiate hard!
Capital gains tax is another frightening one in Portugal – if you’re resident in the country and sell your home then unless you reinvest the profits in another property (at which time any gains made will be tax free) you will be liable to pay income tax on 50% of the gain made, payable over a five year period. If the property you own in Portugal is a second home – i.e., you are not resident in the country then you will be taxed on all the gains made at a flat rate of 25%.
Financial Aspects of Owning and Inheriting Property in Portugal
Ongoing ownership of a home in Portugal will incur the owner council taxes which are called imposto municipal sobre imoveis - again this is charged on a sliding scale depending on the value, age and even location of the property - but if you factor in around 0.5% of rateable value for a new home and 0.8% for an old home you’ll probably be in pocket.
If you let out and derive an income from your property then you will have to pay income tax on it…Portugal has many double taxation agreements in place that prevent you having to pay tax in Portugal and in your country of residence as well, but check this out with a tax adviser before you submit your tax returns. In Portugal income tax for rental income is calculated on a sliding scale with 40% the top rate of tax possibly payable.
Finally, if you inherit a property then you need to understand inheritance tax and you should take advice because it depends on where the person who willed the property was domiciled and what their will says as to where tax is payable. Just for your information in case it is relevant, inheritance tax in Portugal is quite complicated and the amount due depends on many factors such as the value of the property in question and also the relationship between the deceased and the beneficiary…the rate varies from 0 – 50%.
