When buying property in Portugal, whether as your main home, holiday home, or as an investment, first research and understand what taxes you may have to pay. Here we look at purchase and local property taxes, capital gains tax, wealth tax and inheritance tax.
If you are looking for your dream home in Portugal, enjoy the search. There are so many wonderful properties there 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 save tax.
1. Spending time at your property in Portugal could make you a tax resident
If you are only planning to use your property in Portugal as a holiday home for the time being, take care to understand the residence rules.
While you are usually considered a tax resident after spending 183 days in Portugal within a year, it can be earlier if you have a permanent home there – potentially even the day you arrive.
Triggering residency makes you liable for Portuguese taxes on worldwide income and some capital gains. However, with Portugal’s non-habitual residence (NHR) regime offering a decade of tax benefits to new residents, it is worth exploring whether a permanent move can prove more cost-effective for your family.
2. Portugal charges a transfer tax as well as stamp duty
On buying a property in Portugal, 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%. An 8% stamp duty (Imposto de Selo) is also applied.
VAT is charged at 23% (on the mainland) if the property is not purchased from an individual.
You are then subject to the Portuguese equivalent of UK council tax – Imposto Municipal sobre Imóveis (IMI) – of between 0.3% to 0.8% annually depending on the type, location and age of the property (7.5% where ownership is deemed to be based in a ‘tax haven’ jurisdiction).
3. Portugal charges an annual ‘wealth tax’ on property
If your stake in Portuguese property is worth over €600,000, you would attract Adicional Imposto Municipal Sobre Imóveis (AIMI) of between 0.4% and 1.5% each year, depending on value and how the property is held.
However, a €600,000 relief per person means couples with joint ownership only face AIMI on properties exceeding €1.2 million, and then only on the value above this.
Download our guide to taxes in Portugal
4. How much capital gains tax will you pay when you sell your property in Portugal?
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 14.5% 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 proceeds from selling a main home to buy another home within a set period. This only applies if the new home is in Portugal or the EU/European Economic Area (EEA).
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.
With effect from January 2023, 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 in Portugal through a 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.
Since 2018, 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’).
Furthermore, companies trading in properties do not qualify for the wealth tax allowance, which means many ‘enveloped’ properties are liable for 0.4% on the property’s entire value each year.
6. Your heirs could face inheritance taxes in both countries
Finally, you should think about what tax your beneficiaries will have to pay if they inherit the property on your death or you gift it during your lifetime. Passing on Portuguese property to any recipients other than your spouse, children or parents will incur a flat 10% Portuguese stamp duty, wherever they live.
If you remain UK-domiciled – as many expatriates do – your Portuguese property and worldwide estate would also be within firing range for 40% UK inheritance tax.
With careful planning, it is possible to significantly 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 is complex and difficult to get right, so take personalised, professional advice to secure the financial peace of mind to fully enjoy your new home in Portugal.
Before buying property in Portugal, consult the experts
Blevins Franks has decades of experience supporting UK nationals moving to and living in Portugal with specialist tax planning, as well as pensions, estate planning 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.
Contact us today.
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.
