Where to buy
Portugal is a varied country that covers over 92,000 km², offering diverse attractions. It’s a good idea to think about what is important to you in terms of region and location If you adore the sea for example, there is no point settling in the middle of the country. If you like a bit of life and buzz, find out where the nearest town is and how you are going to get there. Research as much as you can about what each season has to offer. In many rural locations, the atmosphere in the summer can be very different from that in the winter.
The western Atlantic coast, from the Costa Verde in the north to the Costa Azul in the south, has a wealth of natural beauty and a number of excellent resorts, long-popular with the Portuguese and Spanish and now firmly in the overseas property buyer’s sights. Inland Portugal has traditional rural homes available, both in rundown condition and beautifully restored, at very reasonable prices. Just remember to factor in realistic restoration costs if you decide to go that route. Lisbon and Porto are two cities with cultural urban appeal for those looking for the city life or an investment property. Other cities such as Braga and Coimbra are also lovely – Coimbra is of course a university town with investor appeal for that reason if no other.
In more recent times, the market has become more organised and transparent to buyers, aided by the government who see this as a positive step forward. Interest is starting to shift away from the holiday ‘hot spots’ into the relatively untouched beauty of the countryside. There is a lot to offer those looking to relocate here, and an opportunity to acquire a fairly priced property which should perform well in the future.
More intrepid buyers, and those looking to pay a little less – sometimes a LOT less – for more, have been looking further east and west along the Algarve coast, as well as the so-called Silver and Green Coasts up the western coast of Portugal. The most adventurous are even casting their nets into the plains and mountains of the countryside. Portuguese developers have recently cottoned on to the attraction of properties with easy or inclusive access to golf courses. It seems that the words ‘golf course’ are a magic charm to guarantee a really good investment in the country. In the longer term, though, it seems likely that low prices coupled with attractive locations such as Obidos, Evora and Coimbra will encourage more people to settle in other parts of the country. Property purchases in Portugal already seems to be mainly a matter of lifestyle choice over investment strategy and this is unlikely to change in the near future.
We have put together a list of questions to ask yourself when looking for your perfect location:
• Do you have an idea about the region you would like to live in? The Western or Eastern Algarve, or the Silver Coast?
• Do you know what type of area you would like to live in? The countryside, a village, town, city or coastal resort?
• Do you want to be a tourist development, or a more residential area?
• Do you want to be amongst expats and foreigners, or somewhere more Portuguese?
• How close do you want to be to local amenities, such as bar, shops, restaurants, local market, beach, marina?
• What sort of distance do you want to be from the airport?
• Are there adequate pharmacy and medical facilities in the area?
• What other facilities do you need? Schools? Entertainment? Gym?
• Will you need to use public transport?
What to buy
People in Portugal don’t necessarily live in quite the same way as the country you’re coming from, so it makes sense to learn about your housing options. You will need to consider the type of property you are looking for in advance – for example, if you are selling up a house in the UK to move to Portugal permanently, a flat may not be the best choice for you! If you are planning on buying a property just for weekends away, then an apartment may be ideal.
It makes sense to consider these things before you start , normally I sit down with my clients to have a chat about their backgrund, ideas, and to get a feel of what sort of property would suit them best. This way we save you a lot of time, and unnecessary visits.
The Legalities of Buying Property in Portugal
Buying property in Portugal is quite straightforward and similar to buying property in any other foreign country. Above all else it is vitally important that you instruct the services of a reputable lawyer and notary. When you have decided on your purchase you will normally be asked to sign a promissory contract and pay a deposit, normally 10%. If you withdraw after this you may forfeit the deposit. If the vendor withdraws he may have to compensate you. Basicly with siging a promissory contct you secure the property for you. If you are buying ‘off-plan’ from a new development under construction, you are normally required to pay the purchase price in stages.
Befores signing any contract, your lawyer needs to check that:
• The title deed is in order and is owned by the vendor.
• There are no outstanding charges on the property.
• The property itself has planning permission and all other necessary licences.
• The terms of the contract are fair and reasonable.
Once all the necessary searches have been carried out and you are satisfied, the lawyer will sign up the promissory contract, and then arrange for any fees and taxes to be paid and for the title deed (escritura) to be transferred into your name and registered with the Portuguese Government Land Registry. The escritura includes a detailed description of the property as well as carrying the name of the person legally owning it, and needs to be signed by the purchaser and vendor in front of a notary. If you cannot be in Portugal to attend the signing you can give Power of Attorney to your lawyer instead providing all parties agree. The importation of funds to buy the property usually needs to be recorded with the Portuguese authorities.
The notary is a public official who is there only to put on public record the fact that the title deed documenting the transfer of the property has been signed in the notary’s presence and understood by all parties concerned. When the escritura is signed in front of the notary, either the funds are handed over in his presence, or the vendor confirms that the money has already been received. Proof of the payment is incorporated into the title deeds.
The charges made by the lawyer in dealing with the basic legal administration in the purchase of property that already exists is usually 1% of the purchase price subject to a minimum charge of around €1,100. If the property is under construction, or there is extra work that the lawyer undertakes, a further charge may be made. Extra work may include negotiations concerning the price, sorting out any problems with the title deed and dealing with utility companies.
VAT (IVA in Portugal) at the standard rate of 23% will be charged on estate agent, legal and survey fees, and on all purchases of building materials as well as the builder’s fees if you build or extend a property.
The notary’s fee will vary. You should count on around 500 euros, including the registration of the property in your name .
IMT and IMI Property Taxes
A purchase tax, Imposto Municipal sobre Transmissôes Onerosas de Imóveis (IMT) of between 0% and 8% (depending on the declared value of the property – the registered Valor Patrimonial – VP) is payable by the purchaser of residential property. The calculation of this tax is not straightforward, but in 2005, property valued at up to €82,000 was exempt, while the rate applicable to property valued at over €510,000 was 6%. Rustic property (not qualified for construction) is subject to a fixed IMT rate of 5% with no tax-free exemption. Other non-residential property is fixed at 6.5%. Where property is acquired by an Offshore Company based in a tax haven (as defined by Portugal – see below), the IMT is 15%.
There is an annual municipal tax (similar to UK Council Tax) called Imposto Municipal sobre Imóveis (IMI), based on the VP and fixed by each municipality. The rates range from 0.2% to 0.8%, depending on the location and age of the property.
It has long been common practice in Portugal for the purchase price of a property to be under-declared. This is illegal and the Portuguese authorities will eventually eradicate it. Meanwhile if you are pressured into buying this way, it is best to avoid getting involved. It will probably not save you anything in the long run (and could in fact increase any future capital gains tax liability), and if it is discovered, you could be subject to penalties. If the authorities suspect that the purchase price has been under-declared they have the option to compulsory purchase at that price.
VPs still bear little resemblance to the real market value of a property and are being systematically reviewed, especially when a transaction occurs. The new VP values will follow a formula that takes into account criteria such as size of the property, the location and quality of build. In many cases the increase in registered value will be substantial.
This is a very practical tool to calculate the costs for IMT and stamp duty tax: APEMIP
Offshore Companies
A common method of purchasing Portuguese property was to purchase through an Offshore Company (OC), often set up in Gibraltar or the Channel Islands, jurisdictions which the Portuguese authorities came to define as Tax Haven Offshore Companies (THOCs).
This practice, which offered a lower rate of IMT, allowed the owners to avoid paying many of the taxes due, including capital gains and inheritance taxes. The Portuguese authorities introduced punitive taxes on property bought through THOCs so that it was no longer financially beneficial to purchase in this way. It was meant to discourage the practice, but for those who already own property through a THOC, it means much higher tax bills. IMT for these properties was increased to 15%, and the annual tax (the IMI) has been increased to 5% per annum. Both of these increases are based on the revalued price of the VP.
For example, on a typical mid-Algarve 4 bed villa, the previous IMI would have been around €750 p.a. at the former rate of 2%; now the IMI would be in the region of €3,000 before the VP has even been revalued.
In addition to these taxes, the Portuguese tax authorities suspected that THOC owners of property failed to declare rental income. In order to ensure that this no longer occurred, an fixed annual tax charge of 25 per cent has been introduced, payable on a deemed rental income of one fifteenth of the rateable value of the property, on all THOC-owned properties (as they are all deemed to be rented, whether or not they actually are). It is up to the THOC to prove that the property is not being rented and is therefore not liable to this levy.
The cost of utilities connected to the THOC property, maintenance bills and municipal tax can be deducted against the one-fifteenth figure, provided that the bills are properly documented and in the name of the limited company. Tax is then payable by the company at the flat rate of 25% on the balance. The company can be re-domiciled to another country with a more favourable taxing regime (such as Malta or the USA, which are not considered THOCs in Portugal) to avoid these taxes on THOCs. Alternatively, the property could be transferred back into the owner’s personal name. Advice should be taken in either case.
This information has been provided by Blevins Franks, a leading pan-European financial advisory group, offering proven personalised strategies to improve and protect your wealth. It has developed a reputation as a major force in the area of international tax and investment planning.