Guide To Buying Property in Madeira

The island of Madeira is a Portuguese island and offers a fantastic location for those looking to buy property abroad, whether as an investment, a holiday home or as a retirement property.

Madeira attracts many people, not only because of it’s year round sub-tropical climate but also because of the fantastic culture, friendly people and relaxed pace of life.

As UNESCO Worldwide Heritage laws protect much of Madeira, it remains a largely unspoilt and beautiful island and continues to be a popular and sought after location.

Who can buy property in Madeira?

Anyone can buy a property in Madeira, regardless of nationality.

If you are an EU national you can live permanently and obtain residency status on the island of Madeira without any authorisation being required.

If you are not an EU national and wish to live on the island, you can automatically qualify for residency status in Madeira if you invest over €500,000 in property in Madeira and comply with the associated rules and regulations.

What is the procedure for buying property in Madeira?

Once your estate agent in Madeira has helped you to find your perfect property, you make your verbal offer through the estate agent who will help you to negotiate the purchase price with the current owner of the property in Madeira.

Once your offer is accepted, an initial written agreement needs to be prepared by a recommended Portuguese lawyer who has experience with property purchases in Madeira. This initial contract needs to be signed by all parties.

Getting a Fiscal Number in Madeira

Before you are able to sign the purchase contract you will need to obtain a Portuguese fiscal number. This is a tax identification number, which is required for many official processes in Portugal.

Your Portuguese lawyers will normally be able to organise this for you.

What are the taxes and other costs associated with buying property in Madeira?

When buying property in Madeira you should make sure that you budget, not only for the purchase price but also the following fees, taxes and other costs associated with a property purchase in Madeira.

Legal Fees: There are usually calculated in accordance with the property value and will typically be between 1-2% of the property purchase price.

Land Registry and Notary Fees: A fee in order to register the property in your name is due to the Land Registry and a fee is also paid to the Notary Public in Madeira who overseas the completion of the Final Purchase Deed.

These amounts vary, however, are usually around 1% of the property purchase price. If you require a mortgage for the property, this cost will be slightly higher.

Property Purchase Tax: This is payable immediately, prior to the final purchase deed being carried out.

There is a tax-free limit of €115 000 (one hundred and fifteen thousand Euros) so for properties under this value no purchase tax is payable.

For properties above this value, there is a sliding scale of up to a maximum of 6% of the purchase price.

If you are purchasing land only, the Property purchase tax is charged at a flat rate of 6.5% – irrespective of the sale value.

Municipality Tax (IMI): This is an annual tax for local services such as rubbish collection, roads, schools etc. The amount of tax due is determined by applying a percentage tax rate to the rateable value of your property (this value is assessed and determined by the local municipality). The percentage is applied by the particular municipality and varies from each town but is between 0.2% to 0.8% of the rateable value of the property.

What is the Inheritance tax rate for properties in Madeira?

Property inheritance tax has been abolished in Madeira for certain relatives of the deceased who inherit the property, including husbands/wives, children and parents. For anyone else the rate of inheritance tax in Madeira is only 10%. This does provide an benefit to many people in investing in Madeira above many other countries where this tax is often much higher.

You may still be liable for inheritance tax in your country of residence or domicile on your asset in Madeira.

What are the Capital Gains Tax Rules in relation to properties in Madeira?

Capital Gains tax is payable in Madeira on the profit made from the sale of a property in Madeira.

Tax residents in Madeira selling property in Madeira pay 20% on 50% of the profit –  or 0% if the property was registered as their main residence for at least the last 6 months and the profit is reinvested into a new property in Madeira which will also be the main residence.  If all of the gain is not used in the subsequent purchase, CGT is due on the balance.

Non-residents generally pay 25% on the total profit.

Some properties acquired before a certain date and are currently registered in the name of the owner on that date, are exempt from CGT.

If you are looking to buy (or sell) a property in Madeira, contact Total Buying Abroad to discuss how we can assist. We can provide you with details of recommended professionals such as estate agents, lawyers and currency specialist to help you make the purchase as easy and efficient as possible.

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Article published: September 16, 2016