How much is Portugal property transfer tax? Buying property in Portugal is a lifelong investment Whether you are buying property through the Portugal Golden Visa program, or are looking to relocate for work, understanding property taxes is essential. First things first, foreigners buying a property in Portugal pay the same exact tax (IMT) as the local Portuguese and that is good news!
This article offers a detailed outline of taxes that buyers should be aware of when purchasing a property in Portugal, starting with the all-important IMT and Stamp Duty.
When it comes to property purchase tax, there are some taxes you will need to consider during the purchase process and other property taxes that you will need to consider after you have made your purchase.
Property Taxes to consider during the purchase process
The following taxes are those that you will need to consider during the purchasing process.
IMT – The Portugal Property Transfer Tax
IMT, or Imposto Municipal sobre Transações Onerosas de Imóveis, is a property transaction tax paid by the buyer when there is a transfer of property ownership of real estate in Portugal. The percentage of tax charged can range from 1% to 8%, depending on a few factors including the purchase price for the real estate, the location of the property and whether it is first or second home in Portugal.
You can calculate an estimated Portugal’s property transfer tax cost on your purchase in our IMT Calculator here.
It’s also worth noting that Portugal’s property transfer tax or IMT has to be paid before the completion of purchase but if the transfer takes place outside the territory of Portugal, the payment may be made the following month.
Stamp Duty in Portugal
The Stamp Duty, or Imposto de Selo, is another property tax that buyers should be familiar with. It’s reportedly the oldest tax in Portugal and is charged for pretty much all contracts and legal affairs regarding your real estate. This includes deeds, contracts, and bank mortgages to do with the house. The duty is accounted for by the buyer, charged at a fixed rate of 0.8% of the property’s registered fiscal value.
Mortgage taxes in Portugal
Taking out a mortgage is a huge part of purchasing a property anywhere. In Portugal, there are a few options including fixed rate or variable rate mortgages.
Check out this article about mortgages for foreigners in Portugal
Whatever the product, the Portuguese government will charge you an additional tax called Imposto sobre a Concessão de Crédito, or the Mortgage Stamp Duty. This tax has a fixed rate of 0.6% of the mortgage amount and it is paid in cooperation with a bank, which may charge their own fees ranging from the application to arranging a mortgage product.
Property Taxes to pay after the purchase in Portugal
Congratulations! You’ve completed the purchase of your dream home in Portugal. Here are some taxes you will need to pay annually on your property.
Municipal Property Tax (IMI)
The Imposto Municipal sobre Imóveis or Immovable Property Tax is an annual tax, which you could compare to council tax in the UK. Price rates can range from 0.3% to 0.8% of a house’s registered fiscal value and is determined in different ways including the type of property, its history, and location. The IMI can be doubled on properties that are left vacant, however, there are also ways that properties can be made exempt from IMI. For example, if you’ve purchased the property for a permanent residency, you may be exempt from paying IMI. This exemption can range from three to six years, depending on the property’s value.
Another post-purchase property tax is the AIMI, a relatively new tax that is infamously referred to as the Portuguese Wealth Tax as it affects those with a total real estate worth above 600,000 euros.
There are three levels of AIMI Tax in Portugal:
- Tax of 0.7% on property valued between €600,000 and €1 mi;
- Tax of 1% on property valued between €1 mi and €2 mi;
- Tax of 1.5% if the total value exceeds €2 million.
There are important differences regarding taxation on rental income, depending on if you would like to rent out your property in the short term, or over a longer time period.
If you are renting out your property, as a rule of thumb, rental income tax is at a flat rate of 28%. Note that there are certain tax deductions that could apply to you with regard to your rental income tax. When declaring your rental income to the Portuguese tax authorities, deductions for fire insurance are allowed (as it is compulsory for all rental properties) alongside value expenses deductions such as the IMI, costs associated with obtaining an energy certificate, and condominium fees, if applicable.
Short term rentals
If you would like to rent out your property for a short time period, then you will need to apply for an Alojamento Local (AL) (Local Accommodation) License. This is a license that allows property owners to rent their properties. This could be a good option for you if you are considering living in Portugal for only part of the year. Why not generate some extra income from renting out your property over the winter months?
To acquire your AL license, you will need to submit your request before the City Council with information about your property, including the type of property that you would like to rent out, and how many rooms and beds the property has. You will also need to hire an insurance company in order to cover potential damages that could occur on the property from your guests.
It is important to note that most of the old town of central Lisbon is locked for AL licenses. This means that you will not be able to request it (for now, at least). Expenses related to the upkeep and maintenance of your property, including repairing and replacing items may also be deducted, as long as they are legally proven and cannot be considered as furniture. Any maintenance or conservation expenses that are conducted on your property in the 24 months prior to renting out your property can also be covered.
To deduct expenses, you will need to keep and show an invoice that identifies the work that was carried out on your property and its location.
Long term rentals
For long-term rentals, you can do this through standard lease agreements. You will not need to obtain an AL license.
Capital Gains Tax
Capital gains are the profit that you make from the sale of the property. Whenever you sell your Portuguese property, the eventual capital gain derived from such a sale may be subject to tax.
You will need to disclose your tax return the year in which the house was purchased and the respective price that was paid when acquiring the property.
Exceptions to capital gains tax in Portugal
There may be deductions or even exemptions to capital gains tax. If you had work done on the house, then present the invoices for them and the corresponding amounts. This includes maintenance, such as the installation of a new heating system. These should be declared as they will be duly considered in the capital gains assessment.
It should be noted that the potential capital gain may not be subject to tax if the total selling price is invested in a new home in Portugal. This is only the case if the house that you are selling is your permanent residence, that you are a tax resident, and that the property corresponds with your tax address. This tax exemption is also dependent on the timing between selling your house and purchasing a new one.
If you sell your house, you will need to purchase a new house and reinvest the total selling price 24 months prior to such a sale or 36 months after the sale. If this is followed, then the capital gains tax is suspended as the owner informs the Portuguese Tax Authorities of their intention to reinvest back into the market.
Once you have purchased your new house, the tax authorities will calculate the profit that you have made and confirm that you used this amount in the purchase of the new property.It is important to document the new house as your permanent residence within 12 months after the reinvestment is made.
There is no inheritance tax in Portugal. However, stamp tax at a rate of 10% is applicable on the assets considered to be located in the Portuguese territory passed on as inheritance. Note that a stamp tax exemption is applicable whenever such inheritance is passed on to spouses, descendants, and ascendants.
It is very important that you are dealing with a licensed real estate agency when buying property in Portugal. If you would like to confirm the license number of the agency and its validity in the IMPIC (Institue of Public Markets, Real Estate, and Construction).
The real estate, the commission is normally 5%+ VAT at the legal rate.
In Portugal, a tax representative acts as the interface between a non-resident and the Serviço de Finanças (tax office) on tax matters under the tax regime. If you are a non-EU resident who owns properties, holds a bank account, or has other commercial activities or interests in Portugal will need to appoint a tax representative in the country. Appointing a tax representative is needed if you are a non-EU resident in order to obtain the NIF (tax identification number) from the Portuguese tax authorities.