When buying property in Portugal, whether as your residence, holiday home or as an investment, research and understand what taxes you may have to pay now and in the future. Here we look at purchase and local property taxes, capital gains tax, wealth tax and inheritance taxes.
If you are looking for your dream home in Portugal, enjoy the search. There are so many wonderful properties here in fantastic locations, you’ll be spoiled for choice.
As always, though, it’s important to research your options thoroughly first, and understand the implications of property ownership and being resident in Portugal, including all the tax considerations. Even if you’re only looking for a holiday home, you still need to be aware of various tax implications that could affect you.
The more information you have in advance, the more opportunities you may have to improve your tax position.
1. Owning Portuguese property and tax residence
If you are carefully timing your change of residency, be aware that Portuguese legislation outlines two criteria that could make you resident for tax purposes, and you only need to meet one of them.
While you are usually considered tax resident after spending 183 days in Portugal within a year, it can be earlier if you have a property here and it appears that you intend to occupy it as your habitual residence at any point in the year. In reality, if you are not spending at least 183 days in Portugal on a regular basis, it would be difficult to argue that it was your permanent home.
Triggering residency makes you liable for Portuguese taxes on worldwide income and some capital gains.
2. Purchase and local property taxes in Portugal
On buying a Portuguese property, you are charged a transfer tax Imposto Municipal sobre Transmissôes Onerosas de Imóveis (IMT). The rates vary depending on whether it is a main home or not, but in both cases the progressive rates range up to 8%.
Portugal does not charge VAT on properties purchased from private individuals, instead a 0.8% stamp duty (Imposto de Selo) is applied. Where VAT does apply, such as on new build property from a developer, the rate is 23% (22% in Madeira).
Going forward, you are subject to the Portuguese equivalent of UK council tax – the annual Imposto Municipal sobre Imóveis (IMI). Rates are between 0.3% and 0.8% depending on the type, location and age of the property.
3. Portugal’s ‘wealth tax’ on higher value property
If you are considering a property worth over €600,000, be aware that you will have an additional annual tax liability. Adicional Imposto Municipal Sobre Imóveis (AIMI) is charged on the value above the €600,000 threshold, as follows:
- 0.4% for properties held by companies/corporate structures
- 0.7% for properties held personally or by un-administered estates
- 1% when the value of the holding is €1,000,000 – €2,000,000
- 1.5% when the value of the holding exceeds €2,000,000
The €600,000 relief is per person. Couples with joint ownership only face AIMI on properties exceeding €1.2 million, and only on the value above this.
4. Selling property in Portugal – capital gains tax
When you come to sell a Portuguese property, you could be liable for capital gains tax in Portugal and potentially also the UK, depending on where you are resident.
For Portuguese residents, your worldwide gains are added to other annual income and taxed at the scale rates, currently between 12.5% and 48%. Only 50% of the gain is taxable, however, and inflation relief applies after two years’ ownership.
Your main home may be exempt from capital gains tax if you use all the to buy another home within a set period. This only applies if the new home is in the EU/European Economic Area. Another exemption applies if you are retired or aged over 65 and reinvest gains into an eligible insurance contract or pension fund within six months of sale.
Non-residents selling Portuguese property are taxed the same as residents. Some gains from Portuguese assets are also taxable in the UK for UK residents. While a credit is available where tax is paid twice, you will pay whichever amount is larger.
5. Owning property through an offshore company
If you are considering buying a Portuguese property through an offshore corporate structure, such as a company or trust, carefully weigh the pros and cons to determine if this is the most suitable approach for you, as it does not provide tax advantages.
The purchase IMT tax may be higher than usual, at a fixed 10%, depending on the type of company. The annual IMI rate on properties owned by companies in listed low tax jurisdictions is 7.5%. Furthermore, companies trading in properties do not qualify for the AIMI €600,000 allowance, meaning ‘enveloped’ properties are liable for 0.4% on the property’s entire value each year.
Where a non-resident company’s value consists of 50% or more in Portuguese real estate, the gain on the transfer of shares may be subject to 25% Portuguese corporation tax (35% if from a tax haven).
6. Inheritance taxes in Portugal and UK
Finally, consider what tax your beneficiaries will pay if they inherit the property on your death or you gift it during your lifetime.
Portugal applies a 10% stamp duty when Portuguese assets are passed as an inheritance or gift. Spouses, children and parents are exempt, but any other beneficiaries will pay this tax regardless of where they live.
UK inheritance tax is assessed on worldwide assets. If you are a UK resident, your Portugal property will be included as part of your estate. This rule will continue to apply for up a decade of leaving the UK, but once you have been living abroad for 10 years, only your UK-based assets remain subject to IHT.
With careful planning, it is possible to reduce your tax liability, not just on your Portuguese home, but on your worldwide assets, investments and pensions, for you and your heirs.
Cross-border tax planning
Cross-border tax planning is complex and difficult to get right. Take personalised, professional advice to secure the financial peace of mind to fully enjoy your new home in Portugal.
Blevins Franks has decades of experience supporting UK nationals moving to and living in Portugal with specialist tax planning, as well as estate planning, pensions and investment management services. Our locally based advisers have the cross-border expertise to make sure your financial affairs are in order so you can relax and enjoy your new home away from home in Portugal.
