Buying a home in Portugal is an exciting experience. However, it's important to note that, along with administrative costs and notary fees, you’ll also have to pay specific and mandatory property taxes, including the immovable property tax (IMI), the property purchase tax (IMT), and stamp duty tax (IS). Each of these taxes is different and is calculated using strict methods.
In Portugal, real estate taxes are required for both residents and non-residents. It’s therefore imperative to be aware of what you need to pay and to understand the differences between real estate taxes and property taxes. Here’s everything you need to know about the different types of real estate taxes in Portugal.
Immovable Property Tax (IMI)
One of Portugal's primary types of real estate taxes is known as the Immovable Property Tax or IMI. Each municipal assembly dictates the rate for that municipality, so the amount will vary depending on where you buy the property. The IMI is paid by the company or owner of the property on the last day of a specific tax year.
Here's what you need to know about IMI real estate taxes in Portugal:
- IMI rates range between 0.3% and 0.45% for urban properties
- Rural properties are generally taxed at 0.8%, with properties in urban areas falling within the normal range
- Properties owned by entities located in blacklisted jurisdictions are taxed at 7.5%
- Real estate in Portugal valued prior to 2004 is taxed between 0.4% and 0.8%, whereas property that's been re-valued after 2004 will incur rates from 0.2% up to 0.5%
- Some types of property are exempt from IMI taxes. These include all permanent and rental homes for the first three years and depend on the property's patrimonial value.
Property Purchase Tax (IMT)
IMT taxes are collected every time a home is purchased in Portugal. This rate varies depending on the property's value and type but is calculated by the rateable value or that listed on the deeds.
These are the three most important criteria required to calculate the Property Purchase Tax in Portugal:
- What is the property type? Is it rural or urban?
- Where is the property located? In mainland Portugal or in an autonomous region?
- Why are you buying the property? Is it a secondary or primary residence?
Stamp Duty (IS)
Stamp duty is required in Portugal for deeds, loans, contracts, titles, documents, and bank mortgages, all of which are owed by the buyer. The rate will vary depending on the property type and value. Generally, the it falls somewhere between 0.4% and 0.8%. The only transactions that pay no stamp duty are those completed under corporate property ownership.
In the case of a real estate acquisition, a flat fee of 0.8% is charged on the value defined in the deed. If you use financing for the purchase of your new home, you will have to pay stamp duty on the value of the credit, applicable according to the term of the loan:
- Up to 5 years, the incidence is 0.50%
- More than 5 years, the rate is 0.60%
If you purchase real estate in Portugal to rent out, you'll be required to pay tax on your rental income. The tax rate varies depending on the length of the lease. It usually ranges from 10% (contracts of 20 years or more) to 28% (for contracts shorter than 2 years).
Wealth Tax (AIMI)
A Wealth Tax, also known as AIMI, was introduced in 2017 and applies to those who own shares of Portuguese property that's worth over €600.000. This rate is set at 0.7% for properties valued at less than €1 million, 1% for those valued over €1 million and 2% for those valued over €2 million. A €600.000 deduction allowance per person is allowed between partners, so the AIMI will only impact the property if it's worth over €1.2 million.
Capital Gains Tax
Portugal also requires a Capital Gains Tax from non-residents after they've sold a home.
- For residents within the European Union If you reside within the European Union, you will have to pay the capital gain at 50%, according to the marginal tax rates (currently between 14.5% and 48%), with the addition of a solidarity tax of 5%. To determine the amount of the rates to be paid, the income earned abroad will be considered.
- For residents outside the European Union If you live outside the European Union, including UK expats who aren't Portuguese residents, you will have to pay the full capital gains tax (100%), at a flat rate of 28% for individuals and 25% for companies, but if the earnings from the sale are reinvested, only 50% of the net taxable income is subject to the capital gains tax. However, as a Portuguese tax resident, if the sale concerns your main residence and if the total amount of the sale is reinvested, you won’t have to pay the capital gains tax.
To calculate this tax, simply take the sale price and then subtract acquisition costs, costs incurred while transferring ownership, and any improvement costs that happened within the last five years.
Want to know more?
If you’d like to learn more about real estate taxes in Portugal or are looking to buy a home, reach out to us today! Our team at Bonte Filipidis™ is always available to discuss your needs.