If you are looking for your dream home in the Algarve, take advantage of the search. There are so many wonderful properties here in fantastic locations, you will be spoiled for choice. However, when evaluating the cost of a property, look beyond the asking price to take into account the various tax and residency implications.
If you are only planning to use your Portuguese property as a vacation home, be sure to understand the residence rules.
Although you are usually considered a tax resident after spending 183 days in Portugal in a year, it can be sooner if you have a permanent domicile there, or even on the day you arrive.
The triggering of residency makes you liable for Portuguese taxes on worldwide income and certain capital gains. However, with Portugal’s Non-Habitual Residence (NHR) regime offering a decade of tax benefits to new residents, it’s worth considering whether a permanent move can actually prove to be more profitable for your family.
Purchase and local taxes
When buying a Portuguese property, you must pay an Imposto Municipal sobre Transmissões Onerosas de Imóveis (IMT) transfer tax of up to 8% plus a stamp duty of 0.8% (Imposto de Selo) .
You are then subject to the Portuguese equivalent of the UK housing tax – Imposto Municipal sobre Imóveis (IMI) – from 0.3% to 0.8% per annum depending on type, location and age of the property (10% where the property is deemed to be based in a “tax haven” jurisdiction).
The “wealth tax” in Portugal
If your stake in a Portuguese property is worth more than € 600,000, you will attract between 0.4% and 1.5% of the Adicional Imposto Municipal Sobre Imóveis (AIMI) each year, depending on the value and how the property is. detained.
However, a relief of € 600,000 per person means that condominium couples only face AIMI on properties above € 1.2 million, and only on the higher value.
Capital gains tax
When you have just sold a Portuguese house, you could be liable for capital gains tax in Portugal and potentially also in the UK, depending on where you live.
For Portuguese residents, your worldwide earnings are added to other annual income and taxed at the scale rate between 14.5% and 48%. However, only 50% of the earnings are taxable and inflation relief applies after two years of ownership.
You will be exempt if you use the proceeds from the sale of a primary residence to buy another house in Portugal or the EU / European Economic Area (EEA). So this now affects British expats who sell a Portuguese house to buy one in the UK.
Another exemption applies if you are retired or over 65 and reinvest your earnings in an insurance contract or qualifying pension fund within six months of the sale.
For non-Portuguese residents, 28% is payable on Portuguese capital gains; alternatively, EU / EEA residents can choose to pay income tax rates instead if this proves to be more advantageous. Again, this has an impact for UK nationals after Brexit.
Certain gains from Portuguese assets are also taxable in the UK for UK residents. Although a credit is available when tax is paid twice, you will pay the higher amount.
Owning a property through a business
The tax benefits of owning Portuguese property through an offshore business structure, such as a corporation or trust, have been diluted by new legislation in recent years. Since 2018, when the value of a non-resident company is 50% or more of Portuguese real estate, the gain on the transfer of shares may be subject to Portuguese corporate tax of 25% (35% if it comes from a “tax haven”).
In addition, companies that market real estate do not benefit from the wealth tax allowance, which means that many “wrapped” properties are subject to 0.4% of the total property value each year. .
So if you are planning to buy Portuguese property this way, carefully weigh the pros and cons to determine if this is the most suitable approach for you.
Finally, you need to think about the tax that your beneficiaries will have to pay if they inherit the property when you die or if you donate it during your lifetime.
The transmission of Portuguese goods to recipients other than your spouse, children or parents will result in a fixed Portuguese stamp duty of 10%, wherever they live.
Remember: if you remain domiciled in the UK – as many expats do – your Portuguese property and World Heritage would also be on hand for 40% UK inheritance tax.
With careful planning, it is possible to significantly reduce your tax liability, not only on your Portuguese home, but on your assets, investments and pensions worldwide, for you and your heirs.
Cross-border tax planning is complex and difficult to achieve, so benefit from personalized and professional advice to ensure financial peace of mind and make the most of your new home away from home.
By Dan Henderson
|| [email protected]
Dan Henderson is a partner of Blevins Franks in Portugal. A highly experienced financial advisor, he holds the Diploma in Financial Planning and Advanced Qualifications in Pensions and Investment Planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com