Whether you’re planning to buy a permanent residence, a holiday home, or an investment property to rent out in Portugal, it’s essential that you understand all of the potential tax charges you may be liable for—both at the point of purchase and as part of your annual tax obligations.
Expatriates who purchase property in another country are often unaware of how foreign real estate ownership may influence their exposure to wealth tax for example, or why owning an overseas home might affect their tax residency position.
Here we discuss the primary taxes related to Portuguese property that you should be aware of. However, more tailored advice is valuable, particularly if you need to consider estate planning and want to be fully informed about the taxes your family members may incur if they were to inherit an overseas property.
Portugal Property Purchase Tax Charges to Budget For
The first area to look at is the cost of buying a property because, like most countries, you will pay Stamp Duty, referred to as Imposto de Selo. The Portuguese stamp duty rates are progressive and vary up to 0.8% depending on the value of the property and location.
Imposto de Selo is calculated against the cadastral value of residential properties, rather than the final agreed purchase price, an administrative valuation recorded in the local land and property registry.
In Portugal, property buyers also pay a property transfer tax called the Imposto Municipal sobre Transmissôes Onerosas de Imóveis, or IMT for short. This tax is due before signing the formal sales agreement. IMT can vary from zero to 8%, depending on whether the property is in an urban or rural area, the value of the transaction, and whether the buyer is an individual or company.
Some buyers also find that they are subject to an additional VAT charge against the purchase price, normally if they purchase a property in mainland Portugal from a corporation rather than a private seller.
Annual Portugal Property Taxes
Once you move into your new home or purchase your holiday property, you’ll be liable to pay a municipal property tax called the Imposto Municipal sobre Imóveis (IMI). This tax is the equivalent of council tax in the UK and can cost between 0.3% and 0.8% of the property’s market value per year.
Portuguese residents with lower incomes and whose properties are valued at €125,000 or less are normally exempt. You can also claim exemption from the municipal tax charge for up to five years if you have bought a property that is part of a municipally funded regeneration or reconstruction scheme.
Understanding Portuguese Wealth Tax and Property Ownership
The Portuguese tax system doesn’t have a wealth tax, as such, but it does impose an additional tax charge against property owners with one or several real estate assets valued above a threshold.
The tax, called the Adicional Imposto Municipal sobre Imóveis, or AIMI, is levied against property owners with a home in the country, including non-residents, with a standard charge of between 0.4% and 1.5% per year, based on the following real estate ownership thresholds for private individuals:
There is an allowance of €600,000, and married couples can combine their allowance. For example, if you own a property jointly, you have a tax exemption of up to €1.2 million before attracting AIMI taxation.
The Impacts of Portuguese Property Ownership on Your Tax Residency Position
Aside from the financial obligations linked with tax liabilities, you should also be conscious that owning a property overseas, even if you do not intend to live there all of the year, could impact your tax residency, where the tax authorities will consider your property ownership when assessing your position.
If, for example, you have a permanent home in Portugal but split your time equally between that home and the UK, you might be categorised as a tax resident, meaning that all your worldwide income and assets would be subject to Portuguese taxation. That may also mean you must account for additional taxes and complexities affecting your estate planning.
Capital Gains Tax on Portuguese Property Sales
Selling a property in Portugal might mean you have a capital gains tax charge to pay, depending on your tax residency status. If you are a resident of Portugal, the norm is for your capital gains from any location to be added to your other annual earnings, subject to taxation on the standard income tax scale rates.
In most circumstances, only 50% of the gain made is taxable, and you may be subject to other reliefs if you have owned the property for at least two years before the sale.
Residents of Portugal who sell a home and use the proceeds to purchase another property, either in Portugal or elsewhere in the EU or the European Economic Area, are also typically exempt from capital gains tax. Further exemptions apply to retirees over 65 who decide to reinvest the gains made from their property sale within six months into a pension scheme or insurance fund.
Non-residents may also be subject to capital gains tax when selling a Portuguese property, but this event might also be exposed to UK taxation. Double tax treaties apply, which means you won’t pay duplicate taxation. Still, you’ll normally need to pay the higher liability and ensure you declare the gain correctly to avoid any problems.
Portuguese Property Ownership and Inheritance Planning
Finally, it’s wise to consider your estate planning if you intend to leave a Portuguese property to a beneficiary. If you leave a property to a recipient outside of your immediate family, including parents, children or a spouse, they may need to pay a flat rate 10% stamp duty charge, even if they are not a Portuguese resident.
The British inheritance tax rules mean that the majority of expatriates remain UK domiciles, regardless of how long they have lived abroad, or whether they were a permanent resident of another country. The outcome may be that beneficiaries of a property in Portugal or any worldwide real estate assets may be exposed to a 40% inheritance tax charge.
Should you need assistance navigating the tax schemes we have mentioned here, evaluating your ongoing tax liabilities linked with property ownership in Portugal, or require advice about managing cross-border assets, you are welcome to contact the Chase Buchanan Portugal office to arrange a good time to talk or visit us in person at your convenience.
*Information correct as at April 2024