Exploring Property Ownership in Portugal  

When buying property in Portugal for a home, holiday home, or investment, it is essential to know how taxes are calculated. Here we learn about some of the most common taxes, like the purchase and local property taxes, capital gains tax, wealth tax, and inheritance tax. 

Your Dream Property Awaits :

Portugal is a country that is full of stunning homes in stunning places. But it’s always a good idea to make sure you fully investigate property ownership and taxes before making a decision, either for your primary residence or your vacation home. It can make it easier for you to make informed decisions and determine where tax advantages lie. 

1)  Tax Residence and Property Ownership 

If you want to live in Portugal and treat your Portuguese home as a residence for tourism, make sure you know the residency regulations. If you spend 183 days or more in Portugal in any given year, you are usually a tax resident. But it could come sooner if you take a home, perhaps as soon as you move in. 

If you are a tax resident, you will have to pay Portuguese taxes on your international income and capital gains. 

2)  Purchase and Local Property Taxes 

If you buy property in Portugal, you are required to pay transfer tax (Imposto Municipal sobre Transmissions Onerosas de Imóveis or IMT), based on property type and use, from 8%. Plus a 0.8% stamp duty (Imposto de Selo).

VAT might be levied on new or refurbished buildings and tourist facilities. Make sure you check with the seller first.

In addition, property owners are subject to Imposto Municipal sobre Imóveis (IMI), Portugal’s version of council tax. The IMI rate varies from 0.3% to 0.8% depending on the property type, location, and age. Property accumulated in ‘tax haven’ countries is charged at a rate of 7.5%. 

3)  Tax On Valued Assets: High-Value Properties -High Wealth Tax Yearly 

Real Estate above €600,000 is subject to Adicional Imposto Municipal Sobre Imóveis (AIMI), which can range from 0.4% to 1.5% per year. Couples who share their property receive a single tax break of up to €1.2 million and are taxed only over this figure. 

4)  Selling Property: Capital Gains Tax  

If you sell property in Portugal, you may be subject to capital gains tax in Portugal and/or possibly in your home country, depending on where you live.

For Portuguese residents, half the income is taxed, and you get an inflation exemption after two years. You will pay from 14.5% to 48% of taxes, depending on your income.

Exemptions apply to those who reinvest profits in another primary residence within Portugal or the EU/EEA or those over 65 years of age who reinvest profits into tax-eligible insurance or pension funds.

As of January 2023, non-residents are also taxed as residents. It can also be used to tax UK sales across borders, where credits can be claimed to minimize double taxation. 

5)  Buying Property Through a Company 

Tax-wise, property purchased through an offshore company or trust does not normally carry benefits in Portugal. As of 2018, profits on the sale of shares in a company that has 50% or more of its assets encircling Portuguese property are charged with 25% Portuguese corporation tax (35 percent for ‘tax haven’ jurisdictions).

Enclosed properties, on top of this, don’t qualify for AIMI exemption and thus pay 0.4% annual value-added tax. 

6)  Inheritance Taxes 

Assing on Portuguese property incurs a fixed 10% stamp duty (except for spouses, children, or parents who are exempt).

Your worldwide property, including Portuguese property, will also incur a 40% UK inheritance tax if you remain UK-domiciled. This burden for your descendants can be substantially reduced if you plan correctly. 

The Need for Cross-Border Tax Strategies 

Navigating cross-border taxation is complex.  Individualized professional guidance makes sure that you get the most out of your finances so that you can make the most of your property in Portugal.