Portugal

Why Portugal?

Attracted by the temperate climate, friendly people and ease of travel from the UK, many British people have chosen Portugal as the location for their second home or even moved there permanently.

Since 1993, when revised planning regulations were introduced, new building has declined, causing property prices to rise (at around 15–20 per cent per annum in recent years) but also helping to ensure that new developments blend with their surroundings.

Property prices vary but are generally higher than in Spain, owing to higher land costs and generally superior quality. For those willing to renovate, it is still possible to find older properties inland at very reasonable prices.

Portugal also seems to have weathered the troubles affecting the property market in Spain well, and has continued its steady and sustainable growth.

Popular property locations in Portugal

Traditionally, the Algarve has been the first choice of British people purchasing second homes in Portugal. However, the resulting heavy demand and consequent rise in property prices are leading to increased interest in other, more northerly areas, principally the Silver Coast and the Costa Verde, where tourism is not yet as developed as it is in the Algarve and major transport and infrastructure improvements are being undertaken.

Silver Coast property

Located in central Portugal, between Porto and Lisbon, the Silver Coast is home to some of the country’s most impressive architecture and historical and religious sites.

Previously, the Silver Coast was largely untouched by the overseas property market. Consequently, prices were below Portugal’s average. Capital growth is some of the highest in Portugal, with improved transport networks helping to attract increasing numbers of buyers.

Costa Verde (Green Coast property)

Property prices in this region are the cheapest in Portugal, the best bargains being found inland rather than on the coast.

Buying a property in Portugal

The local tax office then issues a Fiscal Number, and buyer and seller agree a provisional contract, which details the terms of the sale. A deposit (usually 10 per cent of the purchase price) is paid.

Property Fees and Taxes

Several fees and taxes are payable when buying property in Portugal. These generally amount to between 10 and 15 per cent of the purchase price and may include:

• transfer tax (resale properties only)

• value added tax (new properties only)

• notary’s fees

• legal fees

• deed registration fee

• surveyor’s fee (optional)

• mortgage fees (if applicable)

• utility fees (new properties only)

Most fees are based on the declared, or fiscal, value of the property, which was traditionally much lower than the actual price paid, to minimise tax. However, the fiscal value of most properties has been recalculated in recent years and there are harsh penalties for buyers who declare a price considerably below actual market value.

Declared Values

In the past there has been a culture of under-declaring the value of resale property, in order to cut down on the capital gains tax for the vendor and other fees due on property sale.

Portuguese Property Mortgages

Purchasers needing finance for their property purchase have the choice of remortgaging their UK home or arranging a mortgage on their Portuguese property through a Portuguese or UK lender. Releasing equity in a UK home means that the second home can be purchased for cash, without the need for another mortgage. Mortgages can be obtained through Portuguese lenders for purchase, re-financing and home improvements. A number of UK mortgage providers will lend funds of up to 80 per cent of the purchase price for second home purchase over, typically, a 15-year term.

Euro mortgages

Euro mortgages, which are tied to the rate set by the European Central Bank (ECB), currently lower than the Bank of England base rate, may seem an attractive option, and several UK lenders offer them.

Portugal’s tax system

Portugal’s taxation system is similar to the systems of other EU countries. There is a double taxation agreement between Portugal and the UK.

Personal taxation: non-residents

In general, non-residents are only subject to income tax on income sourced in Portugal, for example, interest paid by Portuguese banks. They may also be liable for value added tax, wealth tax, capital gains and inheritance tax, according to individual circumstances.

Non-residents must complete an annual income tax return if they receive income from letting property. In Portugal, only repairs and maintenance costs are tax-deductible. Deduction of mortgage interest against rents, permitted by some other countries, is not allowed.

Personal taxation: residents

Residents of Portugal are subject to taxation on worldwide income, capital gains and inheritances. For tax purposes, a foreign national staying in Portugal for more than 183 days during a tax year (January 1 to December 31) is considered a resident.

Residents of Portugal are also subject to other taxes, including value added tax, vehicle sales tax, stamp tax, rental property tax and taxes on real estate transactions.

Local taxes

Collected annually, Contribuicao autarquica is a municipal property tax calculated according to a property’s registered value and the local services available. For rural properties, it is currently 0.8 per cent and for urban properties between 1.1 and 1.3 per cent.

Inheritance tax

Upon presentation of the appropriate documentation, inhertiance tax (known as Stamp Tax in Portugal) is not payable when a property is passed to a member of your immediate family.

Passports, visas and residency

Passports and visas

EU citizens must be in possession of a valid national identity card or passport to enter Portugal. Residency

Portugal does not require EU citizens (including British nationals) to have residence permits.

A short-term residence permit is valid for stays of between 90 days and a year.

The Portuguese economy

Portugal has become a diversified and increasingly service-based economy, with the services sector now supplying nearly two-thirds of its GDP. The UK is one of Portugal’s largest foreign investors.

Portugal property: Investment potential

Although Portugal is seen as one of the most established overseas property markets in the world, it is also seen as a much better investment prospect than many of the newer ‘emerging’ markets. As the rental potential for buying property in Portugal makes up a large part of the investment attraction for British buyers, it is worth considering the possible obstacles that need to be overcome before you can begin to earn money. If you are buying a run-down country property for renovation, you should also be aware of the planning laws in Portugal.

And finally…

Buying property in Portugal, or anywhere else abroad is a major decision and one that should not be taken lightly. Individual circumstances will vary widely, so it is essential to obtain professional advice and guidance tailored to your particular situation, especially in areas such as property purchase, potential rental returns, taxation and mortgages.