Real Estate transaction costs in Portugal
The additional costs when purchasing property in Portugal
Transaction taxes for real estate in Portugal are very low
Compared with most other European countries, transaction taxes for real estate are very low in Portugal. While in Spain you usually pay between 8 and 10% of the purchase value of your investment under the sun, in Portugal this is only 5 to 6%. The costs of purchasing a property in Portugal depend on various factors such as the value of the property, the reason for the purchase and whether the purchase is made through a mortgage.
In all cases, the following taxes must be paid by the buyer when purchasing property in Portugal. Payment for this is generally made on the day of the final purchase deed.
How to calculate transaction taxes for real estate in Portugal
To be able to calculate the transaction taxes, you must first know the purchase value of the property. You also need to know whether you are purchasing the property in Portugal as the first residence and as permanent adress, or as a second residence for your own use or for renting out.
Transaction taxes for properties bought as a second home or for rental
Most foreign real estate investors and buyers of properties fall under this tax scheme. If you buy a property to generate rental income or you want a second home under the Portuguese sun to spend the winter there, but maintain your own address in the UK, Canada, Ireland or the U.S., this is the transaction tax rate intended for you:
The transaction tax IMT
This is the actual transaction tax. The buyer is liable for the correct payment of this transfer tax for real estate in Portugal. To calculate this tax, look in the table below for the purchase value of your property in Portugal, multiplied by the tax rate. You then deduct the rate discount from the result.
up to: € 92.407.00 - Tax rate: 1% and without discount
from: € 92.407.00 to: € 126.403.00 - Tax rate: 2% Discount: 924.07 €
from: € 126.403.00 to: € 172.368.00 - Tax rate: 5% Discount: 4,716.16 €
from: € 172.348.00 to: € 287.213.00 - Tax rate: 7% Discount: 8.163.12 €
from: € 287.213.00 to: € 550.836.00 - Tax rate: 8% Discount: 11.035.25 €
more than € 550,836.00 Tax rate: 6% and without discount
For example, if you buy a property with a purchase value of € 250,000, you calculate the transaction tax IMT as follows:
Purchase value * tax rate = X
X - Discount = IMT
€ 250,000 * 7% = € 17,500
€ 17,500 - € 8163.12 = € 9,336.88 IMT to be paid
Transaction taxes when buying a residence as the first and permanent residence
If you buy real estate in Portugal as a resident and the purpose of the real estate purchase is your own permanent residence and it is therefore registered as the first address, then the IMT to be paid is lower. As you can see from the table below, the tax rate remains the same, but you will receive more discount on it.
up to € 92.407.00 - Tax rate: 0%
from € 92.407.00 to € 126.403.00 - Tax rate: 2% Discount: € 1,848.14
from € 126,403.00 to € 172,348.00 - Tax rate: 5% Discount: € 5,640.23
from € 172,348.00 to € 287,213.00 - Tax rate: 7% Discount: € 9,087.19
from € 287,213.00 to € 574,323.00 - Tax rate: 8% Discount: € 11,959.32
More than € 574,323.00 - Tax rate: 6% and without discount
As you can see, the transaction or transfer taxes for the purchase of a first home are approximately € 1,000 cheaper than for the purchase of a second home or home for rent.
Buying property in Portugal - other additional costs
Whether you buy real estate in Portugal as a permanent residence, as a second home under the sun or as a pure investment, in all cases you have to pay the stamp duties. The stamp duties ("Imposto de Selo") are paid by the buyer at the time of the transfer and are 0.8% of the purchase price.
Nowadays you can apply for a mortgage fairly easily at the Portuguese banks. In general, banks give 60% and in some cases even 70% of the value of the property to be bought. You must pay the remainder of the payment as a self-contribution. If you live and work in Portugal, you can borrow up to 80 or even 90% in many cases. You will then also be eligible for fixed interest rates on your mortgage. As a non-resident, you are required to opt for a variable interest rates. These are cheaper, but naturally also entail more risks.
If you buy a house with a mortgage, a mortgage tax of 0.8% on the value of the mortgage is payable. You must also pay the valuation of your property to be purchased in Portugal by the bank. The costs for this are around € 500.
The duties of a notary in Portugal are not the same as those of a notary in the U.K., Ireland or Canada. In Portugal, the notary is only present during the purchase transfer and records what has been agreed between the buyer and seller. The payment of the purchase price as well as the payment of all transaction taxes takes place under the supervision of the notary. The costs for this are on average around € 750.
It is certainly not mandatory to hire a lawyer when purchasing property in Portugal. However, this is generally recommended to foreigners who purchase property in Portugal.
As mentioned above, the notary in Portugal has different duties than the notary in the U.K. or Ireland. To verify whether the owner of the property to be sold is actually the owner, the house looks exactly as approved by the plans issued to the municipality and it is completely free of mortgages or other charges, you must go to a lawyer or " be solicitador '.
A further advantage of a lawyer (or solicitador) is that you can give him or her a power of attorney for the buying procedure of your house under the Portuguese sun. In this way you do not have to be present in Portugal during the buying process, which can take several months, or you do not have to fly back and forth to Portugal for every signature.
Lawyers usualy take 1% of the purchase price as fee.
Feel free to Contact us if you are looking for a lawyer. We gladly provide the contact details of some excellent English-speaking lawyers in Portugal.