When you're considering buying a property in Portugal you will need to bear in mind how much owning a Portuguese property will cost you.
Alongside utilities and other costs, taxes play an important part too.
Ongoing costs of ownership
It is important to ensure that everything to do with the upkeep of your property (community charges if you’re buying in a complex; utilities; Council Tax/IMI – Imposto Municipal sobre Imóveis) is paid up to date before you buy. And just as is the case in the UK, you should arrange to have all the utilities and services put in your name. You will, of course, have an ongoing obligation to keep up with all of these utility costs and other charges.
Annual costs and tax
The tax you pay when you buy a property in Portugal will normally depend on whether you are a tax resident there or not. Tax residence is determined by a number of factors – including how long you spend in that country, if your main home is there and if your main economic interest is there. If you become a tax resident in Portugal, then you would normally stop paying taxes in your home country and pay there instead.
IVA (VAT) is payable by the purchaser when the vendor is considered a developer who pays IVA and/or this is the first time the property has been sold or transferred. The VAT rate is a flat rate of 23%. Stamp duty is payable at the rate of 0.8% where VAT is payable. If the house you’re buying is a resale (second transfer) property, then you will also need to pay Transfer Tax (Imposto Municipal sobre a Transmissão Onerosa de Imóveis). This will need to be paid to the Portuguese Tax Authority within 30 days of the date the title deed is signed. You may also need to pay Mais-Valias, which is a tax based on the increase in the value of the land since the last transfer, although this is not normally a huge amount.
Other costs to consider:
- Imposto Municipal sobre Imóveis (IMI), is the Portuguese version of UK’s council tax. Rates vary from 0.3% to 0.8% according to property type, location and age. While some exemptions are available, IMI could be doubled on vacant properties and increased to 10% where ownership is in a ‘blacklisted’ (tax haven) jurisdiction.
- Introduced in 2017, the Adicional Imposto Municipal Sobre Imóveis (AIMI) is seen as Portugal’s version of a wealth tax, affecting 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% for those owning property valued over €1 million. The €600,000 allowance is per person, so a property owned jointly with your partner will only attract AIMI on the value in excess of €1.2 million.
- For non-Portuguese residents, income tax on rental income is 28%, although maintenance, repair expenses and IMI may be deducted. If you are UK resident, the rental income is also taxable in the UK, but you can off set the Portuguese tax paid against the UK liability. If your intention is to move to Portugal and occupy the property as your main home, then you will be Portuguese tax resident.
In 2009, the Portuguese government introduced the Non-Habitual Resident (NHR) regime for anybody who has not been resident in the previous five years. It provides beneficial tax treatment for the first 10 years of residence. Application on arrival is simple, and your status should be confirmed within 8 weeks.
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