Beautiful coastline, stunning weather and friendly people encourage thousands of Brits to buy property in Portugal. But if you’ve found yourself reading this, you’ll know that already.
Starting a new life in Portugal can also be a practical move. The cost of living is circa 30% less than it is in the UK. According to Forbes, the Algarve is the cheapest expat destination for sun-seeking Brits.
Indeed, food, travel and activities are less expensive that in the UK. And so is property.
In this article, we’ll go through the buying process, what property taxes you’ll need to think about and the best way to transfer your money from pounds into euros.
This article is just a snippet of our comprehensive guide to moving to Portugal. Download the full guide for free. We go through choosing the right destination, Portuguese mortgages, finding a bank account and much more.
The buying process
First, you’ll have to agree the promissory contract between you and the seller. (In the local lingo, the “conrato de promessa de compra e venda”).
At this stage, both the buyer and seller can set any conditions. This is also where you’ll be expected to pay your deposit, which is usually in the region of 15% (Though it may be less on new build properties).
Once this is done, the property becomes yours legally. However, it is subject to you sorting the following documents:
The Property Registration Certificate
This will be checked at the local land registry to make sure that no-one else has ownership of the property and that it’s free of any debt.
The Property Tax Document
This is the official tax document that confirms what the taxes are for the property, as well as the current tax details for the owner and the property itself.
Once these checks are complete, both parties will then move to sign the final deed. (“Escritura de compra e venda”).
Something interesting to bear in mind:
Once the promissory contract is drawn up, there are consequences for both parties if they pull out of the deal. If you, the buyer, withdraws from the agreement, you can lose your deposit. If the seller pulls out, not only do they have to refund the deposit, but they must double it!
In other words, be very sure you’re interested in a Portuguese property before you decide to move forward.
Completing the final deed
This normally takes place about a month after signing the promissory contract, assuming all checks go through with little issues. At this stage, the buyer is expected to pay the remaining balance of the property purchase price, along with any fees and taxes.
Then, the notary will register the property with the Land Registry Office and the Local Tax Office.
And the process is finished! Enjoy Portugal.
What are the costs of buying property in Portugal?
In Portugal, there are four main additional costs you’ll need to take into account when planning your property finances:
- The IMT (Purchase Tax): This can vary substantially, from 0% up to as high as 6.5%. (This is set by the local councils and be careful: it’s based on their valuation — not what you’ve actually paid for the property). You’ll want to find out well in advance what this rate is, as it can add thousands to your purchase price.
- Notary Charges
- Stamp duty
- Legal fees (which are typically around the 1,000 Euros mark)
Legalese and things to bear in mind
- Make sure your estate agents are the real deal. In Portugal. Estate agents are certified by the government. They should have an AMI – essentially a license number — and should be trained by the INCI.
- Again, the Notary represents the state — check that they’re certified, as their role is vital. They will ensure that your land titles are correct and filed correctly. They’ll also ensure you pay the correct taxes. Not tasks you want an amateur taking care of!
- Property laws are not one size fits all. In Portugal, individual areas have individual building legislation. Make sure you understand the relevant restrictions and rules, or else you might be caught out by local red tape. This especially applies if you’re planning an extension.
- Expect to pay service charges in apartments. As in the UK, condos and apartments can be subject to additional annual expenses. Be sure to check what they are.
- Hidden debts. In some condos, you could be held responsible for covering the debts of defaulters also living in the developments. Be sure to check for this.
- Income tax applies. If you’re planning a buy-to-let, then as in the UK you’ll be expected to pay income tax on any rent you receive in Portugal. Make sure to plan this in your accounts.
What if you’re not in the country?
The right solicitor should be able to help you arrange for the Power of Attorney. This will mean you can continue the legal process even if you yourself aren’t actually in the country, with your solicitor or lawyer working on your behalf.
You’ll have to sign a document in the presence of a Portuguese Notary to get the ball rolling, but once it’s done your solicitor will be able to act on your behalf.
Portuguese property taxes
Perhaps the most important thing to bear in mind is that in Portugal, mortgage and tax debts stay with the property, rather than the person. If the previous owners have taken out a 50,000 mortgage on your new home, it’s down to you to deal with that even if you didn’t take the mortgage out.
In Portugal, any significant financial transaction requires a Portuguese tax number, whether you’re a resident or not. You’ll need to get this “Numero Fiscal de Contribuinte” in advance of your property purchase.
Fortunately, it’s not hard and only costs around €10.
You’ll need to supply these to the local Portuguese tax office:
- Proof of identity (passport, residency card, driver’s license)
- The property address
They’ll then forward your fiscal card with your tax details to the property.
What if you don’t have the address yet?
Normally, you can use the address of your estate agent, solicitor or even that of a relative or friend in the country.
Don’t forget PPT – The Property Transfer Tax. All property purchases in Portugal are subject to PPT. This is a tax due on the transfer of property rights and it can reach as high as 8% depending on the property.
Normally, PPT is calculated on whichever is the higher of these two factors: The property transfer value and the taxable value.
For simplicity, the latter – the taxable value – can depend on a number of different criteria, including (but still not limited to):
- The size of the property
- The location
- The quality/degradation of the property
- How old the property is
- What kind of property (residential, commercial, etc)
There are also a number of other factors that are taking into consideration. (You can start to see why getting a solicitor with local knowledge is so vital).
Your proof of PPT certificate will be requested by the notary responsible for completing the sale and purchase deed, so you’ll need to pay for it before completion. Fortunately, you can pay for this at any local tax office.
IMI — The Municipal Property Tax
All owners of residential property in Portugal must pay IMI (Municipal Property Tax), which is broadly speaking Portugal’s version of council tax.
As with council tax, the cost of this tax varies according to the value of the property.
If the tax in total is less than €250 for the year, then it is paid in April. If it is between €250-500, then it is paid in two equal amounts in April and September. If it is above €500, it’s paid in 3 instalments in April, July and September.
Everyone’s favourite tax is just as payable in Portugal as it is in the UK. There are some different figures, but the stamp duty in Portugal is typically 0.8%.
How financial firms are regulated in Portugal
All financial advisors in Portugal have to be licensed by the Portuguese Insurance and Pension Funds Supervisory Authority, so be sure to check for this certification if you seek out financial advice.
One thing worth noting is that unlike the UK, Portuguese financial advisors will often charge nothing upfront, but will instead make their money on commission.
Funding your property purchase
If you’re buying Portuguese property as a British expat, then chances are, you’re using money that’s residing in the UK. If this is the case, you’ll need to move that money to Portugal.
At Privalgo, we’ve helped countless expats save money and time when they make international payments and purchase foreign property. Through intuitive solutions and an unparalleled personal service, we can help you mitigate the risks that come with market volatility.
Book a free chat to speak with one of our currency specialists. Together, we can discuss your foreign exchange requirements and propose potential solutions.Book a free one-to-one