As always, though, it is important to research your options thoroughly and understand the implications of property ownership and being resident in Portugal, including all the tax considerations. If you are only looking for a holiday home, you still need to be aware of various tax implications that could affect you.
- Spending time at your property could make you tax resident
If you are only intend to use your Portuguese property as a holiday home, follow the residence rules carefully.
While you are usually considered tax resident after spending 183 days in Portugal a year, it can be earlier if you have a permanent home here – potentially the day you arrive.
Triggering residency makes you liable for Portuguese taxes on worldwide income and some capital gains. However, with Portugal’s non-habitual residence (NHR) regime offering a decade of tax benefits to new residents, it’s worth exploring whether a permanent move can actually prove more cost-effective for your family.
- Portugal charges a transfer tax as well as stamp duty
On buying a Portuguese property, you are charged a transfer tax Imposto Municipal sobre Transmissôes Onerosas de Imóveis (IMT) of up to 8% plus 0.8% stamp duty (Imposto de Selo).
You are then subject to the Portuguese equivalent of UK council tax – Imposto Municipal sobre Imóveis (IMI) – of between 0.3% to 0.8% annually (10% where ownership is deemed to be based in a ‘tax haven’ jurisdiction).
- Portugal charges an annual ‘wealth tax’ on property
If your stake in Portuguese property is worth over €600,000, you would attract Adicional Imposto Municipal Sobre Imóveis (AIMI) of between 0.4% and 1.5% each year.
However, a €600,000 relief per person means couples with joint ownership only face AIMI on properties exceeding €1.2 million, and then only on the value above this.
- You could face capital gains tax in both Portugal and the UK
When selling a Portuguese home, you could be liable for capital gains tax in Portugal and potentially also the UK, depending on where you are resident.
For Portuguese residents, worldwide gains are added to other annual income and taxed at the scale rates, currently between 14.5% and 48%. Only 50% of the gain is taxable, however, and inflation relief applies after two years.
You are exempt if you use the proceeds from selling a main home to buy another home, but only if it is in Portugal or the EU/European Economic Area. Another exemption applies if you are retired or aged over 65 and reinvest gains into an eligible insurance contract or pension fund within six months.
For non-Portuguese residents, 28% is payable on Portuguese capital gains. EU/EEA residents can currently choose to pay the scale income tax rates instead.
Some gains from Portuguese assets are also taxable in the UK for UK residents, with a credit available where tax is paid twice.
- Corporate-owned property may no longer be tax-efficient
Buying a Portuguese property through an offshore corporate structure no longer provides the tax advantages it used to.
Since 2018, where a non-resident company’s value consists of 50% or more in Portuguese real estate, the gain on the transfer of shares may be subject to 25% Portuguese corporation tax (35% if from a ‘tax haven’).
Companies trading in properties do not qualify for the wealth tax allowance, so many ‘enveloped’ properties are liable for 0.4% on the property’s entire value each year.
- Your heirs could face inheritance taxes in both countries
Passing on Portuguese property to recipients other than your spouse, children or parents will incur a flat 10% Portuguese stamp duty, wherever they live.
If you remain UK-domiciled, your Portuguese property and worldwide estate are also within firing range for 40% UK inheritance tax.
With careful planning, it’s possible to significantly reduce your tax liability, not just on your Portuguese home, but on your worldwide assets, investments and pensions, for you and your heirs. Cross-border tax planning is complex, so take personalised, professional advice to secure financial peace of mind.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Tel: 289 350 150
By Dan Henderson, Partner, Blevins Franks