Property Tax in Portugal: How to Pay Property Transfer Tax

Are you considering buying property in Portugal? Real estate in Portugal is thriving, and foreign investment is booming as investors recognize Portugal’s business potential. Hundreds and thousands of people visit Portugal annually to enjoy its famous beaches, beautiful cities, tasty food, and overall high quality of life.

Real estate in Portugal is in rising demand and prices. However, if you are considering jumping on the property market in Portugal, it’s essential to understand Portugal’s property taxes – especially the property tax in Portugal for foreigners. If you’re scratching your head and wondering, ‘How much is Portugal’s property transfer tax?’, we’ve got you covered.

In this guide to property taxes in Portugal, we’ll cover the property taxes you need to know about, whether you’re buying property as an investment or you’re looking to relocate to Portugal. We’ve divided this guide into two sections: property tax owed during the purchase of real estate and property tax owed after the real estate purchase.

Property Taxes in Portugal During Property Purchase

More people are moving yearly to this sundrenched Mediterranean country, with the 2021 census stating that the number of foreign residents in Portugal increased by 40 percent between 2011 and 2021. Since then, the country has continued to increase in popularity. At the end of 2022, 757,252 foreigners were residing in Portugal, 8.3 percent more than in 2021.

When purchasing a Portuguese property, various taxes may apply. The transfer tax, or Imposto Municipal sobre Transmissões Onerosas de Imóveis (IMT), can range up to 8 percent, accompanied by a 0.8 percent stamp duty. An annual tax rate, ranging from 0.3 percent to 0.8 percent, is also determined. There is typically a tax on the purchase price, usually around 5 percent, depending on the property’s location and type. It’s important to note that the seller typically covers this tax

You will need to consider the following taxes during the purchasing process.

IMT Tax Portugal, or Property Transfer Tax

IMT, or Imposto Municipal sobre Transações Onerosas de Imóveis, is a property transaction tax the buyer pays when there is a real estate property ownership transfer in Portugal. The IMT is a property tax for both locals and foreigners. This is a property transfer tax that’s sometimes known as ‘the property purchase tax’ as it needs to be paid when purchasing property.  The amount that you will be taxed ranges from 0 percent to 10 percent, depending on a few factors, including:

• Property purchase price
• Location (properties in rural areas are taxed at 0.8 percent, while urban areas can be taxed from 0.3 percent to 0.545 percent)
• If you’ve ever bought a property in Portugal before
• Whether your property has been valued since 2004 ( properties valued before 2004 are taxed at a rate of 0.4-0.8 percent; properties valued since are charged at 0.2 percent – 0.5 percent)

You can estimate the cost of Portugal’s property transfer tax on a real-estate purchase using our IMT Tax Portugal Calculator here.

It’s also worth noting that you must pay Portugal’s property transfer tax or IMT before purchasing any property. You must pay the following month if the transfer occurs outside Portuguese territory.

 

Stamp Duty in Portugal

The Stamp Duty, or Imposto de Selo, is another property tax that buyers should be familiar with. It’s reportedly the oldest tax in Portugal and is charged for all contracts and legal affairs regarding your real estate.

Stamp Duty can be charged on deeds, contracts, and bank mortgages for the house. The buyer accounts for the stamp duty, which is charged at a fixed rate of 0.8 percent of the property’s registered fiscal value.

Long-term letting or sub-letting contracts are taxed at a 10 percent rate of the monthly rental amount.

Corporate property ownership transactions in Portugal — involving a company acting as the legal property owner rather than an individual — are exempt from Stamp Duty.

Mortgage taxes in Portugal

Mortgages are often associated with purchasing a property. There are a few options in Portugal, including fixed-rate or variable-rate mortgages.

Check out this article about mortgages for foreigners in Portugal for more information.

Portugal charges an additional tax called Imposto sobre a Concessão de Crédito or the Mortgage Stamp Duty.

This tax has a fixed rate of 0.6 of the mortgage price and is paid in cooperation with a bank.

Portugal Property Purchase Taxes

Congratulations! You’ve completed the purchase of your dream home in Portugal. The hard part is over, but you still need to pay some property taxes annually.

Annual Municipal Property Tax (IMI)

The Imposto Municipal sobre Imóveis or Immovable Property Tax is an annual municipal property tax that could be compared to the UK’s Council Tax. As of 31 December every year, all property or landowners must pay IMI.

The Immovable Property Tax is paid annually, and the payable amount is calculated by applying a variable rate between 0.3 percent and 0.5 percent, fixed annually by the municipalities, to the taxable value.

The rate depends on the type of property, its history, and its location (whether it’s in an urban area). In general, immovable property tax rates range from 0.3 percent to 0.5 percent for urban dwellings and up to 0.8 percent for rural properties.

The IMI can be doubled on properties that are left vacant. However, there are ways that properties can be made exempt from IMI. For example, if you’ve purchased the property for a permanent residency, you may be exempt from paying IMI or might be eligible to pay a lower amount. This exemption can range from three to six years, depending on the property value.

AIMI (Wealth Tax)

The Addition to the Municipal Property Tax (Adicional ao Imposto Municipal de Imóveis or AIMI) is another tax owed after purchasing real estate.

Introduced in 2017, this is a relatively new tax referred to as the Portuguese Wealth Tax, as it affects those with a total real estate worth above €600,000.

There are three levels of AIMI wealth tax in Portugal:

• 0.7 percent tax rate on property valued between €600,000 and €1 million
• 1 percent tax rate on property valued between €1million and €2 million
• 1.5 percent tax rate if the total value exceeds €2 million

Despite having similar names, note that the IMI tax and AIMI tax are separate and need to be paid. AIMI exemptions apply to municipal enterprises, social housing, construction cooperatives, resident associations, and commercial real estate owners.

It’s important to note that your property tax is different from your general tax, which is determined via an income scale rate.

Rental Taxes

If you’re letting out your real estate purchase, there are certain rental taxes you need to note.

As a rule of thumb, rental income tax is applied at a flat rate of 28 percent of your net rental income. However, certain tax deductions could apply to your rental income tax. For example, you can deduct fire insurance costs (as this is compulsory for all rental properties), value expense costs (such as the IMI), condominium fees, and costs associated with obtaining an energy certificate.

Rental taxes vary depending on whether you’re letting out your property short-term or long-term. As well as your rental income tax liability, you should also bear in mind that you may need a local accommodation license.

Short-term rentals

If you’re planning on renting your place to tourists for short periods, you’ll need to apply for an Alojamento Local (AL) (Local Accommodation) License. This license allows property owners to rent out their properties for short-term tourism.

This could be a good option if you are considering living in Portugal for only part of the year. Why not generate extra income from renting your property over the winter months?

To acquire your AL license, you must submit your request before the City Council with information about your property, including the type of property you would like to rent out and how many rooms and beds the property has. You will need to hire an insurance company to cover potential damages that could occur on the property.

Most of the old town of central Lisbon is currently locked for AL licenses. This means that you will not be able to request it (for now, at least).

You can deduct any property or maintenance costs in the 24 months before renting from the license cost. To deduct these expenses, use any receipts to prepare an invoice identifying the work carried out on your property and its location.

Long-term rentals

For long-term rentals, you will need to draw up a standard lease agreement and do not need to obtain an AL license.

Capital Gains Tax (CGT)

Capital gains are the profit you make from selling a property. Any capital gain you earn from the sale may be subject to tax whenever you sell Portuguese property.

In your tax return, you must disclose the year the house was purchased and how much you paid for it. The CGT rate varies depending on the duration of ownership, with capital gains from properties held for more than ten years being taxed at a lower rate than those held for a shorter period.

Exceptions to Capital Gains Tax in Portugal

There may be deductions or exemptions to Capital Gains Tax.

For example, if you had maintenance work done on the house, such as installing a new heating system or insulation, you can present the invoices for this work during your CGT assessment.

You may also be exempt from Capital Gains Tax if you invest the total selling price of your property into a new home in Portugal. The house you sell must be your permanent residence and correspond with your tax address. You must also buy a house within 36 months.

After purchasing your new home, the tax authorities will calculate the profit you made from your sale and confirm that you used this amount to buy the new property. Documenting the new home as your permanent residence within 12 months after the reinvestment is also essential.

Inheritance Tax

Understanding the basics of inheritance tax can help you plan ahead and make the most of your assets. In Portugal, an inheritance tax is a tax levied on the transfer of assets from a deceased person to their heirs.

The tax rate varies depending on the relationship between the deceased and the inheritor, with spouses and direct descendants being taxed at a lower rate than more distant relatives. In some cases, there may be exemptions and reductions available, such as for the inheritance of a main residence.

Usually, there is little to no inheritance tax in Portugal. However, stamp tax at a rate of 10 percent is applicable on the assets considered to be located in the Portuguese territory passed on as inheritance. Note that a stamp tax exemption applies whenever inheritance is passed on to spouses or family members such as parents or children.

Agency Fees

When buying property in Portugal, we recommend you go with a licensed real estate agent. You can confirm the agency’s license number and validity through the IMPIC (Institue of Public Markets, Real Estate, and Construction).

Real estate agents usually charge a commission of 5 percent plus VAT.

Tax Representation

In Portugal, a tax representative acts as the interface between a non-resident and the Serviço de Finanças (tax office) on tax matters under the tax regime.

If you are a non-EU resident who owns properties, holds a bank account, or has other commercial activities or interests in Portugal will need to appoint a tax representative in the country.

They may charge agency fees but can help you navigate the tax system. Getting a tax representative is required if you are a non-EU resident to obtain the NIF (tax identification number) from the Portuguese tax authorities. The NIF number is required for anyone with financial interests in Portugal regardless of their residency status. For Portuguese residents and residents of any other EU country, it’s not necessary to have fiscal representation to get a NIF number. Instead, you can simply go to a local tax office in Portugal and apply for one.

Portugal: Tax Breaks for Foreigners

Regarding property taxes in Portugal for foreigners, if you’re looking for a full breakdown of Portuguese taxes, tax exemptions, and tax breaks available, check out our guide to taxes in Portugal here.

You might also find the following links helpful:

• Personal Income Tax (IRS) in Portugal
• Portugal’s Tax Authority
• Portuguese Social Security department
• Portugal income tax calculator

How Can We Help You Find Your Dream Property?

Goldcrest Real Estate is the first buyer’s agent in Portugal, providing you with a tailor-made service to find your ideal property in Portugal. From sourcing to acquisition and aftercare, Goldcrest guides you throughout the buying process.

Here's how Goldcrest stands out in making your property dreams come true:

LOCAL KNOWLEDGE: Goldcrest has offices throughout Portugal, ensuring a strong presence from the mainland to the Azores and Madeira.

INDEPENDENT SERVICE: Goldcrest don’t represent any specific development or project, ensuring their advice remains impartial. By objectively analyzing every opportunity, Goldcrest focuses on maximizing your investment prospects. They partner with various agents, sellers, promoters, and developers, ensuring a broad spectrum of property options. The goal is straightforward: To help you find the best property at the most favorable price, whether you're buying or renting.

STREAMLINED PROCESS: Goldcrest provides a dedicated real estate consultant paired with a top-notch client management system for smooth information exchange. With the aid of advanced technology, like metasearch tools, they guarantee expansive market coverage. Goldcrest's viewing itineraries are tailored to your needs, and they're always ready to assist, be it in-person or on your behalf. When it comes to pricing, they use data-driven analysis to ensure you get the best deal. And, to make your journey smoother, Goldcrest assigns a dedicated onboarding account manager for every client.

ALL-ENCOMPASSING SOLUTION: Navigating financial aspects? Goldcrest is here to guide you through finance options and manage the required documentation. If you need property management solutions or connections to builders, architects, designers, and gardeners, they have you covered. Relocating? Their concierge services are designed to assist in everything, from securing accommodations to handling utility connections.

TRANSPARENCY AND PRIVACY: Goldcrest operates with a commitment to GDPR compliance, ensuring your data is protected. Expect a clear and detailed pricing model without any hidden surprises. Plus, they provide independent due diligence services to ensure every decision you make is informed.

Thinking about buying a property in Portugal?

Now that you know all about Portugal’s property tax, including the mandatory Property Transfer Tax Portugal, it’s time to start thinking about where to buy.

Our following guides might help you make up your mind:

• Where to Buy Property in Lisbon
• Where to Buy Property in the Algarve
• Where to Buy Property in Porto
• Where to Buy Property in Cascais

Frequently Asked Questions about Property Tax in Portugal

What is the IMT tax in Portugal?

IMT, or Imposto Municipal sobre Transações Onerosas de Imóveis, is a property transaction tax paid by the buyer when there is a real estate property ownership transfer in Portugal. This is a transfer tax that will need to be paid when purchasing property and will range from 0 percent to 10 percent. This depends on a few factors, including:

• Property purchase price
• Location
• If you’ve ever bought a property in Portugal before
• Whether your property has been valued since 2004 (pre-2004 valued properties are taxed at a rate of 0.4-0.8 percent, post-2004 valued properties are charged 0.2 percent – 0.5 percent)

Do you pay property taxes annually in Portugal?

After you have purchased a property in Portugal and paid the taxes that you will need to pay at the time of purchase, you will also need to pay property taxes annually for as long as you are the owner of the property. This is called the municipal property tax (IMI). The IMI rates are set annually by the council where your property is located. You may also need to pay AIMI, depending on if the total real estate is worth above €600,000. 

What are the tax implications of owning a house in Portugal?

Owning a house in Portugal comes with a few annual tax considerations. You’ll likely pay a Municipal Property Tax (IMI) between 0.3 percent and 0.8 percent of the property’s value, depending on location and type. There’s also a flat stamp duty of 0.8 percent on the purchase price. If you plan to rent the property, you’ll be taxed on the rental income.

What is IMT tax in Portugal?

IMT, short for Imposto Municipal sobre Transmissões Onerosas de Imóveis, is the transfer tax you pay in Portugal when buying a property. Think of it as a one-time fee levied on the purchase price. The rate varies depending on the property type (residential vs commercial), location, and whether it’s your main residence (which might qualify for exemptions). It can range from 0 percent up to 8 percent.

What is the luxury property tax in Portugal?

In Portugal, the AIMI (Adicional Imposto Municipal sobre Imóveis) acts as a luxury tax for property. It applies to the entire value of residential properties and plots for construction exceeding €600,000. So, while there’s no separate tax label for luxury properties, AIMI targets them with a rate of 0.7 percent on the portion of the value exceeding €600,000 for individual owners.

If inherit a property in Portugal, do I have to pay tax on it?

Inheriting a property in Portugal might incur two taxes: a one-time stamp duty (IS) of 0.8 percent on the purchase price and a yearly Municipal Property Tax (IMI) depending on location and property type. However, exempt beneficiaries such as spouses and descendants often avoid the stamp duty.

What is the Capital Gains Tax rate for selling properties in Portugal?

The capital gains tax on a property sale in Portugal is typically levied at a flat rate of 28 percent, but the amount you will depends on your residency status:

• Residents: Residents of Portugal pay capital gains tax on 50 percent of the capital gain from the sale.
• Non-Residents: Non-residents are taxed on the full amount of the capital gain from the property sale.

Does owning property in Portugal make you a tax resident?

Having a property in Portugal doesn’t necessarily mean you’re a tax resident. Your tax residency is based on how much time you spend in the country and other factors like your main economic activities.

How do property tax rates vary by property type and location in Portugal?

The property tax rates in Portugal are unique to each type of property and its location, reflecting the diverse character of different areas. Generally, urban properties in prime locations carry higher tax rates, while rural or less developed areas often have lower rates.

What is wealth tax in Portugal?

In Portugal, the wealth tax is referred to as the Additional to IMI (AIMI). It is a tax levied on high-value properties in addition to the standard annual property tax (IMI).

Can property taxes in Portugal be appealed or reduced?

Yes. While it’s important to pay taxes, property owners in Portugal can appeal their property tax assessments if they believe there is an error. Additionally, reductions or exemptions may apply under certain conditions.