Get to know the full cost of owning Portuguese property, from stamp duty, local rates, wealth tax and tax on holiday home lets to capital gains tax.
Get to know the full cost of owning property in Portugal, including local transfer and wealth taxes, capital gains tax and stamp duty.
For many expatriates, owning a place in the sun is part of the dream retirement in Portugal. Be it a holiday home or somewhere more permanent, it is important to look beyond the price tag and understand all the tax implications.
Buying Portuguese property
Imposto Municipal sobre Transmissôes Onerosas de Imóveis (IMT) is a transfer tax payable when buying Portuguese property. Ranging from 1% to 8%, rates depend on purchase price, its ultimate use and whether it is your main or second home.
An additional stamp duty (Imposto de Selo) of 0.8% is payable on purchase. Although new developments attract a higher rate in the form of 23% VAT, this is usually included in the property price.
Annual local taxes
Imposto Municipal sobre Imóveis (IMI) is the Portuguese version of UK council tax. Rates vary from 0.3% to 0.8% according to property type, location and age. While some exemptions are available, IMI can be doubled on vacant properties and increases to 10% where ownership is deemed to be based in a ‘blacklisted’ jurisdiction.
Portuguese wealth tax
Adicional Imposto Municipal Sobre Imóveis (AIMI) affects those with a share in Portuguese property worth over €600,000, regardless of residency. Rates are 0.4% for properties held by companies, 0.7% for individuals and 1% where combined property value goes over €1 million.
Relief comes via a €600,000 allowance per person, deducted from the value of all Portuguese properties. This means couples with joint ownership only face AIMI if properties exceed €1.2 million, and then only on the value above this.
Those not eligible for the allowance pay AIMI on the full property value. However, for both IMI and AIMI, the tax authorities calculate property value using the Valor Patrimonial Tributário (VPT), which is usually lower than the actual market value.
Letting Portuguese property
When renting out Portuguese property, the income is always taxable in Portugal, regardless of residency.
Net rental income for residents attracts a flat tax rate of 28%. Alternatively, you can choose to add rental income to your other annual income and pay tax at the normal scale rates, but this only benefits those with income under €10,701, where the lower rates of 14.5% or 23% apply.
For non-residents, tax on rental income is set at 28%, although maintenance, repair expenses and IMI may be deducted.
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.
Selling Portuguese property
Capital gains tax applies when selling any Portuguese property bought after 1988.
For residents, gains are added to your other annual income and taxed at the scale rates between 14.5% and 48%, but only 50% of the gain is taxable and you receive inflation relief after two years of ownership.
Residents do not face capital gains tax, however, when selling a main home and using the proceeds to buy another home within Portugal or the EU/European Economic Area (EEA). While this currently means that Britons selling a Portuguese home to reinvest in a UK property are exempt, this is on track to change post-Brexit.
Fortunately, a new residence relief was introduced this year to widen the scope. Now, if you are either retired or aged over 65, you can receive an exemption if you reinvest gains in an eligible insurance contract or pension fund within six months of sale.
If you are non-resident, 28% is payable on all capital gains. While you are an EU citizen, you can opt to be taxed as a Portuguese resident instead, but must declare your worldwide income to calculate the applicable tax rate. Take care as this may not be the most tax-efficient approach.
Other tax considerations for Portuguese property
If you die owning Portuguese property or gift it during your lifetime, recipients other than your spouse or children will face 10% stamp duty, wherever they live. Also, UK nationals may be considered UK-domiciled and therefore liable for UK inheritance tax, even if you are a Portuguese resident.
See five things you should know about estate planning in Portugal
If renovating or extending Portuguese property, note that this could prompt revaluation by the tax authorities, potentially leading to higher ongoing IMI and AIMI charges. Bringing the VPT closer to market value, however, could provide capital gains tax benefits when selling the property.
Whether you are living in Portugal or just own property here, make sure you keep up with your tax obligations in both Portugal and Britain. It can be hard getting cross-border tax planning right, so take personalised professional advice to limit your exposure and get the most out of your home away from home.
Download our 2019 guide to taxes in Portugal
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.