What taxes will I have to pay when buying property in Portugal?
When buying a property in Portugal it’s important to understand the tax implications before committing to a property purchase. There are a number of one-off taxes as well as ongoing costs that may apply, depending on your personal circumstances, including:
- Property transfer tax(Imposto Municipal sobre Transmissôes)
- PortugueseCouncil tax (Imposto Municipal sobre Imóveis)
- Income tax
- Wealth tax
- Capital gains tax
Property transfer tax (Imposto Municipal sobre Transmissôes)
When buying a property in Portugal you will be liable to pay transfer taxes called Imposto Municipal sobre Transmissôes Onerosas de Imóveis (IMT). This tax varies between 1 per cent and 8 per cent, depending on a number of factors, including the purchase price, whether the property is a primary residence or second home and what the property will be used for (i.e. main home, holiday let etc.)
For second-hand properties an additional stamp duty (Imposto de Selo) of 0.8 per cent is also payable on completion, while 23 per cent VAT must be paid on new developments, this is usually included in the property price though.
Portuguese Council tax (Imposto Municipal sobre Imóveis)
In Portugal the local tax (similar to council tax in the UK, for instance) is called Imposto Municipal sobre Imóveis, or IMI for short. The rate payable varies between 0.3 per cent and 0.8 per cent, depending on the property type, location and age. Some reductions and exemptions are available in certain circumstances, for instance those with dependents are entitled to a discount. On the other hand, IMI can be doubled on vacant properties and rates may be significantly higher for property owners who benefit from a favourable tax regime in their country of residence.
Wealth tax in Portugal
For those who own property worth more than €600,000, they may be affected by Portugal’s ‘wealth tax’, Adicional Imposto Municipal Sobre Imóveis (AIMI).
Regardless of residency, rates are 0.4 per cent for properties held by companies, 0.7 per cent for properties owned by individuals and properties worth more than €1million are subject to a rate of one per cent.
Each individual has an allowance of €600,000, therefore if you jointly own a property worth €800,000 in equal shares, for instance, you would not be subject to the wealth tax. However, if you jointly owned a property worth more than €1.3 million you would each be subject to AIMI on the proportion above the €600,000 threshold for individuals (so will be taxed on the additional €50,000 each).
If you own multiple properties amounting to more €600,000 you will owe AIMI on the combined value of the properties minus the individual allowance.
If you rent out your property in Portugal, you will owe income tax in Portugal, regardless of whether you are resident in Portugal or a different country. Rental income is charged at a set rate of 28 per cent. However, you may also be able to offset costs such as repairs, maintenance and IMI.
If you are UK resident, rental income (and capital gains) are also taxable in the UK. While you can offset the Portuguese tax paid against UK liability to avoid double taxation, expect to pay the difference if the UK tax is higher.
Capital gains tax
If you decide to sell your property in Portugal, you may be subject to Capital gains tax.
Ordinarily, capital gains tax only applies to those selling a second home, it does not apply to residents selling a main home and using the proceeds to buy another home in Portugal or within the EU/European Economic Area (EEA).
Portuguese residents pay capital gains tax on just 50 per cent of the gain and are also entitled to an inflation relief after owning the property for two years. The amount of tax payable is dependent on any other earnings for the year and varies between 14.5 per cent and 48 per cent accordingly.
If you live in Portugal or simply own a property there, there are many variables that can alter the amount of tax you owe, especially in terms of income, capital gains and wealth taxes, so it’s important to seek tailored professional advice.
If you are buying or own a property in Portugal and would like specialist advice about taxes contact our team on 01244 470339 or email us at email@example.com.
We can also put you in touch with helpful property professional contacts, including currency specialists, mortgage advisers, English-speaking lawyers, estate agents and more, who can help you buy property safely and efficiently in Portugal.
Article published: December 19, 2018