Last Updated on 6th September 2024
Most expatriates living in or planning a relocation to Portugal will appreciate the need to assess their potential future tax liabilities, including UK pension income, capital gains tax, business taxes and the tax levied on investment income.
However, it is also important to understand how property wealth tax works within the Portuguese tax system, while noting that this is somewhat different from wealth taxes in other EU countries.
In Portugal, the variation is that there isn’t actually a wealth tax per se, at least not in the way some tax regimes levy a charge on the entirety of a tax resident’s worldwide income and wealth. Instead, taxpayers pay a nominal rate based solely on the value of their real estate assets.
Let’s clarify how the Adicional ao Imposto Municipal de Imóveis (AIMI) works, how it slots into the broader tax landscape and the impacts this will make on your overall tax position, whether you are considered a tax resident or a non-tax resident with Portuguese property ownership.
The Portuguese Tax System: Do Residents Pay a Wealth Tax?
A key factor is that the Portuguese wealth tax levy only applies when residents or tax residents own property assets, either within Portugal or internationally, worth €600,000 or more. Since it applies to such a limited asset definition, it is often not regarded as a wealth tax.
Other assets, income sources, and investments are excluded and are not subject to any additional tax rate outside of the normal tax system, where tax obligations are typically assessed through the standard self-employed income tax return process.
The AIMI was introduced in 2017 and updated in 2019 and applies in addition to other property taxes levied through the Imposto Municipal de Imóveis (IMI)—these are two separate taxes, and paying IMI does not have any impact on your possible AIMI liability.
For expatriates who are not categorised as tax residents, AIMI is only payable if their real estate within Portugal exceeds the limit. Tax residents who are living in Portugal permanently or long-term, may become liable if their collective property assets internationally tip over the threshold.
Understanding the Basics of the Portuguese Property Wealth Tax
The Portuguese tax year runs concurrently with the calendar year, with the reportable value of property assets calculated on December 31st. Anyone with ownership of Portuguese property as of January 1st could, therefore, be subject to the tax.
Following the tax liability calculation, the AIMI charge is confirmed in June and payable in one installment the following September.
As a quick overview:
- AIMI applies to anybody with Portuguese real estate worth over the initial €600,000 threshold – whether they are tax residents or not.
- The tax rate starts at 0.4% for properties owned by commercial entities, increasing to 0.7% for private taxpayers, and with a higher progressive rate as the total property portfolio value rises. Although commercial AIMI tax rates are lower, companies often have more limited exemptions and exclusions.
- Couples can combine their allowances, which means a married couple or civil partners are exempt up to €1.2 million before AIMI becomes payable.
This property tax applies to residential properties within urban areas and to plots of land earmarked for development or construction work. Some property owners, including municipal enterprises and resident’s associations, are exempt.
Budgeting for Portuguese Property Wealth Tax Liabilities
Currently, there are three potential AIMI rates for private owners, depending on the total assessed value of real estate and whether they are tax residents or evaluated only on properties owned within Portugal.
- The 0.7% tax rate applies to taxpayers with properties over the €600,000 threshold but below €1 million.
- Taxpayers with property worth over €1 million and up to €2 million are subject to a 1% AIMI tax rate.
- Those with property portfolios worth over €2 million pay a higher 1.5% tax charge.
The rules include primary homes, secondary residences and commercial structures, although the correct categorisation of properties can become complex, necessitating professional tax advice to ensure you budget correctly for the arising tax liability.
Importantly, the value of a property for AIMI tax purposes may differ from the actual value paid. The tax authorities calculate an attributed value, which determines the tax payable. Taxable asset values are also subject to deductions linked to outstanding liabilities against the property.
The IMI property tax system arrives at a tax charge depending on factors such as the location, size, and condition of the property, and is similar to council tax in the UK, calculated by the relevant municipal authority and used to finance regional infrastructure and services.
AIMI is different and relies on a more comprehensive appraisal of a property’s taxable value, including the land on which the property sits.
Tax Exemptions for Expats Accounting for AIMI Property Tax Obligations
Some property owners in Portugal can claim exemptions or allowances. If you live primarily in Portugal and are a permanent resident, you will not be expected to pay AIMI if the assessed tax value of your home falls below the threshold.
Real estate used in some trades, commercial activities and agriculture are also exempt. However, there are specific criteria you need to meet to qualify for an exemption, and it is essential you review the conditions carefully to avoid non-compliance.
Independent Guidance Budgeting for Tax Liabilities as an Expat in Portugal
This brief guide sets out how AIMI works, why it is considered different from the typical wealth taxes levied in other countries, and the basic criteria against which the tax is calculated.
As always, it is wise to ensure you have full oversight of your ongoing tax liabilities, if possible, before a relocation. Early and careful planning may affect your decisions about whether to retain or sell overseas property assets and the ownership structure of homes or investment assets you intend to purchase within Portugal.
For more information about Portuguese property taxes, including IMI and AIMI, or for assistance budgeting for your tax obligations and identifying the best way to avoid unnecessary tax exposure while remaining fully compliant, please get in touch with Chase Buchanan.
Our recently expanded team of Private Wealth Managers in Quarteira, in the Algarve region, is on hand to assist, or you can contact our UK Administration Centre to arrange a convenient time to talk.
*Information correct as at July 2024