A Guide to Buying Property in the Algarve
Once you’ve found your dream home and are ready to make an offer, the actual ‘Buying Process’ in Portugal may seem like a daunting task if you are not familiar with what’s involved. We want you to be equipped with all the up-to-date and relevant information so that you can make well-informed decisions and that’s why we’ve put together the following guide.
We hope you find this guide helpful – should you have any questions, please do not hesitate to call us.
Instructing A Lawyer
It is highly recommended that you use a Portuguese property lawyer to assist with the purchase of a property in Portugal.
They will check that all of the relevant documentation is in place, carry out all of the relevant searches and also check that there are no outstanding debts against the property.
You can give your lawyer a Power of Attorney to act in your absence, which will avoid the need for you to keep returning to the Algarve to deal with any issues relating to the purchase of a property.
Most lawyers in the Algarve speak English and their fees are generally around 1 to 1.5% of the value of the property purchase.
If you are taking out a mortgage on the property, a valuation will be carried out by the mortgage lender. This is not a building survey, so it may be advisable to have a structural assessment carried out by the equivalent of a Chartered Surveyor, depending on the age of the property.
Fiscal Number (Numero de Contribuinte)
You will need to apply for a ‘fiscal number’ which your lawyer can obtain on your behalf for a small fee. A fiscal number is required in order to open a Portuguese bank account and for the payment of utility bills such as water, electricity etc.
Promissory Contract (Contrato Promessa de Compra e Venda)
Once a price has been agreed between you, the purchaser, and the seller of the property, you will be in a position to sign a ‘Promissory Contract’. At this stage, a deposit of normally 10% is paid (this may be more if agreed upon by both parties).
The Promissory Contract is a binding document signed by both parties, which states all of the terms & conditions agreed, such as the price and completion date of the purchase.
If after signing the promissory contract, you were to default on the contract, the deposit will remain with the seller. If however, the seller defaults, they will have to refund double the amount of the deposit paid.
Final Deed (Escritura de Compra e Venda)
This is the completion of the property purchase where the balance of the price is paid and the ownership is transferred. The Notary reads a statement both parties sign, stating that monies have been received and delivered accordingly. All property documents must be submitted to the Notary, with proof of payment of property transfer tax, ‘IMT – Imposto Municipal Sobre Transmissões’.
It is advisable for clients owning a property in Portugal to have a Portuguese Will as it makes the process easier for whoever inherits the property. Your lawyer will advise you further on this matter.
If you are intending to stay in Portugal for more than 6 months of the year, you will be required to apply for residency. This is an identification document that entitles you, as a member of the European Union, to the same rights as a Portuguese national.
The process of applying for residency has recently been simplified so you may either apply for it yourself, or your lawyer will do it on your behalf for a small fee.
Fees / Costs
In addition to the purchase price of your property, it is advisable to allow between 5% and 8% of the purchase price to cover the costs involved. This will cover your IMT fee (Imposto Municipal Sobre Transmissõe) shown in the table below, a stamp duty of 0.6% of the purchase price, Notary & Registration fees of about €300 as well as Lawyer’s fees of 1% to 1.5%.
The table below explains how the amount of IMT is calculated with a percentage of the euro purchase price, then a deduction in euros against this percentage. (So overall the % actually paid will be lower than that displayed in the table following the deduction).
Table 1 – Permanent Residence For One’s Own Use
|Purchase Price (Euros)||Percentage of Tax||Deduction (Euros)|
|Up to €92,407||0||0|
|From €92,407 to €126,403||2%||€1,848.14|
|From €126,403 to €172,348||5%||€5,640.23|
|From €172,348 to €287,213||7%||€9,087.19|
|From €287,213 to €574,323||8%||€11,959.32|
|€574,323 to €1 Million Over €1 Million||6% of the total with no deduction 7.5% of the total with no deduction|
Table 2 – Non Permanent Residence
|Purchase Price (Euros)||Percentage of Tax||Deduction (Euros)|
|Up to €92,407||1%||0|
|From €92,407 to €126,403||2%||€924.07|
|From €126,403 to €172,348||5%||€4,716.16|
|From €172,348 to €287,213||7%||€8,163.12|
|From €287,213 to €550,836||8%||€11,035.25|
|€550,836 to €1 Million Over €1 Million||6% of the total with no deduction 7.5% of the total with no deduction|
For example, should a non-resident purchase a property for €250,000, the IMT will be calculated as follows:
€250,000 x 7% = €17,500
€17,500 minus the deduction of €8,163.12 = €9,336.88 IMT Payable
It is now strongly advised that a buyer declares the true value of a property when purchasing it. However, the purchase price can be reduced by mutual agreement with a separate allocation of up to 10% of the purchase price for furniture and fittings.
Capital Gains Tax
Capital Gains Tax is payable on the profit made from a sale.
Residents pay 20% on only 50% of the profit made or nothing at all if the profit is reinvested in property in Portugal, although this has to be done within 2 years of the sale of the property. If only part of the profit is reinvested, Capital Gains Tax will be payable on the balance.
Non-residents pay 25% of the total profit.
Inheritance Tax – ‘Imposto Sucesório’
For residents, Inheritance Tax is no longer applicable if the property is inherited by a spouse, children or parents. In cases where other parties inherit the property a 10% transfer tax applies. If a client is not resident in Portugal, they may be liable to Inheritance Tax in the UK.
Up until recently, there were a number of advantages of purchasing a property offshore, where a company owns the property rather than an individual. Advantages included the fact that there was no transfer tax, no capital gains tax, and no inheritance tax.
However, new legislation has been brought in to discourage offshore ownership in favour of properties being bought and registered in the name of an individual. Offshore ownership does now incur some taxes, so it is no longer such an attractive option.
The implications of offshore ownership are very complex, so it is strongly recommended that you seek professional advice regarding this issue.
Whilst reasonable care is taken to ensure that the information contained on this page is accurate, we cannot guarantee its accuracy and we reserve the right to change the information on this page at any time without notice. All particulars contained herein are for guidance only and do not form part of any contract.