An introduction to Portuguese property taxes
If you’re buying property in Portugal, whether for a permanent residence or not, there are several Portuguese property taxes that you will be fiscally obligated to pay.
If you’re moving to Portugal permanently or plan to spend over 183 days there a year, you will have to make your home government aware of your move/departure. This is a formality, but there could be tax implications if say, leaving behind a let property. It could also result in a tax rebate for you.
One of the best ways to get a full picture of what taxes you’ll pay and where is to seek the advice of an independent financial advisor, who will be able to discuss your situation and asses your options.
Taxes on buying property in Portugal
When buying a property in Portugal, regardless of the purpose of the property or whether it’ll be your main residence, you will have to pay property taxes. They include:
Property purchase tax (IMT)
The property purchase tax or Imposto Municipal sobre a Transmissão Onerosa de Imóveis (IMT) is charged on a sliding scale between 1% and 8%, with slight variations between urban and rural properties. There is also a reduction in rates for urban property intended as a primary permanent residence. No IMT is charged on properties with a value below €92,407 and rates only rise above 5% on properties valued above €172,348.
A significant threshold is a property value of €126,403, after which the standard IMT rate rises from 2% to 5%. This tax is based on either the price paid in the contract or the council assessment of the value of the property, whichever is higher. Beware how the thresholds on this tax work out, as marginally straying into the next band up could significantly increase your purchasing cost.
There are, however, exemptions on IMI tax. If you’re 65 or over and buying a home for permanent residence, property in a rehabilitation area or properties with a low taxable value are exempt.
Value added tax (VAT) on new properties
If you’re buying a brand-new property from a developer, rather than IMT you pay a version of value added tax (VAT), known as IVA in Portugal.
The standard rate of IVA is 23% in Portugal. It should be included in the purchase price, but is worth double checking if the property price seems unusually low. This tax is not applicable to resale homes.
Stamp duty (IS)
A smaller tax usually paid by the buyer is stamp duty, known in Portugal as Imposto do Selo (IS). This varies according to the region and is between 0.4% and 0.8% of the purchase price.
As it is a tax on the creation of the deed by the notary it is paid at the same time as the notary or soon after.
If you do not have a NIF in Portugal, the IS rate increases to 1%.
Tax planning on property ownership in Portugal
Income tax (IRS)
In Portugal, the tax year mimics the calendar year and runs from January to December, while that seems logical, it can take expats a while to get used to. If you’re living in Portugal for more than 183 days in a calendar year, you will be considered a tax resident in Portugal and all income, regardless of where it’s from, must be declared on your Portuguese tax return. You won’t pay tax twice on the same income, but you may find that if you’re a tax resident, you may need to pay the difference if higher in one country.
Portugal has a double taxation treaty with most countries, including the UK, USA, Spain, France and Italy, however it’s worth checking your country is included if unsure.
Deadlines for income tax payment are usually several months after filing but are known to change, so get in touch with a tax advisor to be sure.
Property wealth tax (AIMI)
If you own a property worth over €600,000, you are liable to pay AIMI tax. Commonly referred to as Portugal’s equivalent of a “wealth tax”, AIMI is a higher level of IMI and is taxed at a rate of 0.7% which increases to 1% on properties worth over €1 million.
However, this is an individual allowance, so married couples would only have to start to pay on a joint-owned home with a value of €1.2 million.
Capital gains tax
You will also pay tax when you sell the property, especially if you make a capital gain, i.e. sell the property for more than you paid.
For non-residents from within the EU or EEA, capital gains tax (Impuesto sobre la Ganancia Patrimonial) is at a flat rate of 19% of profits made on the sale of the property. However, for those outside the European Union, including the UK, it is at a flat rate of 24%.
For a resident it is 19% for the first €6,000 of profit, 21% between €6,000 and 50,000, and 23% if the profits are above €50,000 and 26% from €200,000 upwards.
Tax on rental income
Once you’ve bought your property you may decide to let it out. If you do, you will be taxed on any profits you make. Generally, net rental income is tax at a flat rate of 28%. However, this depends on the characteristics of the contract. You may benefit from reduced rates e.g. for essential fire insurance, expense deductions etc.
