IMT Property Purchase Tax
The IMT has to be paid by the purchaser prior to completion of the transaction of the acquisition of a property. On habitation properties the rate varies according to the purchase price of the property and can go up to 6%. On non-urban land the rate applicable is 5% and on plots of land for construction and other types of properties the applicable rate is 6.5%. The minimum amount on which the IMT can be paid is the VPT even if the sales price is lower.
Stamp duty - Notary - Registration fees
These are to be paid by the purchaser prior to signing the notarial deed and the registration of the property into the buyer’s name. The stamp duty on the purchase is 0.8% of the sales price. The minimum amount on which the stamp duty must be paid is the VPT even if the sales price is lower. Notary and registration fees will usually cost around 1% of the transaction price, yet not exceed EUR 1,000.
IMI Annual Property Tax
The IMI has to be paid yearly in two or three installments depending on the value. The property tax is based on the VPT and can vary between
0.3% and 0.45%. Within this limit the rate is fixed annually by the council of the area where the property is located. In the Council of Loulé the rate applicable for 2017 is 0.30%. The IMI for non-urban properties remains at 0.8%.
AIMI Additional Municipal Property Tax
The AIMI does not apply to all types of property as the law excludes non-urban, commercial, industrial or service providing properties. The AIMI applies to the remaining properties, which include apartments, houses and plots for construction amongst others. To calculate the AIMI, the State uses the combined total value of the VPT of all properties owned (except the properties excluded from AIMI) and applies the following rates to the sum of VPTs obtained:
- Companies: 0.4% on the total amount
- Privately Owned Property: On the sale
- Up to the Value of EUR 600,000 - No AIMI
- Between EUR 600,000 and EUR 1Million - 0.7% on the value between EUR 600,00 and EUR 1Million
- Valued above EUR 1 Million - 0.7% on 400,000 + 1% on Value in excess of EUR 1Million
- Properties owned by companies registered in blacklisted off shore territories remain the same. The rate applicable is 7.5% both for IMI and AIMI.
Capital Gains Tax
On the sale of a property there is a capital gains tax to pay at a rate of 28% for non-resident individuals and 25% for companies (non-residents). The tax is calculated on the difference between the sales price and either the purchase or building price of the property, either index linked or its first rateable value linked, whichever is the highest. It is of essence when building a property to receive proper invoices from the construction company, architect etc. of the amounts paid so that you can offset these costs against capital gains tax payable. Other costs that you can use to offset against the capital gains tax are invoices of certain refurbishments made to the property in the past 12 years, taxes, notary and registration fees paid at the time of acquisition of the property, as well as the real estate agent fee.
You can avoid the payment of this capital gains tax, if the property you are selling is your main residence and if you reinvest the proceeds of the sale within 36 months in the acquisition, construction or refurbishment of another property designated as your main residence within the European Union (or in a country with whom Portugal has agreements for the exchange of information in tax matters).
Between close relatives there is no inheritance tax in Portugal i.e. parents/ children and spouses. Although on gifts you have to calculate a 0.8% stamp duty based on the VPT. Any other situations of inheritance or gift will be subject to stamp duty at a rate of 10% of the VPT.
I would like to encourage you to carefully investigate any investment before taking action. I also suggest that you speak with a local accountant and a qualified local lawyer before making investment in the Algarve.