Portugal offers many positives for the expat property investor. For a start, it is not saddled with many of the restrictions and regulations that make property investment a complexity for expats elsewhere in Europe.
Not that property-buying in Portugal will always be smooth sailing. As you might expect, it has its own peculiarities. Here we look at some of the issues you will need to consider before putting your savings into a Portuguese property.
There are many factors that make property investment in Portugal a favourable option currently. For example, mortgage rates are low while property prices, although on an upward trend in most cities and regions following the nadir of the 2008 crash, are still much cheaper than in many comparable countries.
One significant factor in the recovery of the property market has been the investment of British expats – many of whom are currently keen to secure residency in light of Brexit-related uncertainties.
The country’s golden visa programme has proved a useful way to fast-track this process; simply buy a Portuguese property with a value of €500,000 or more and you can, subject to bureaucratic approval, become a Portuguese citizen, while also opening up the potential to benefit from future capital gains.
Banks in Portugal will generally lend expat buyers no more than 65% of a property’s value and generally offer rates of between 3.25% and 5.25%. However, if you are a Portuguese taxpayer, you may be able to borrow up to 90% of the purchase price (there is much variation in the market and advice from a bilingual adviser with local knowledge of the housing market as well as the lending process is more or less essential).
You will need some form of income in order to pay back your loan and your mortgage repayments cannot exceed more than 40% of your monthly income.
Although Portuguese mortgages typically run for 25 years, in many circumstances it may be possible to get a 30-year term. As in the UK, much will depend on your income and situation. That said, it is unlikely that you will be able to get a mortgage if you are in your 80s or older.
In Portugal, property purchase fees are calculated as a percentage of the sale price. Notary fees, however, are fixed at a flat rate of around €150 per sale.
Taxes include a stamp duty of up to 0.8% of the sale price, while new properties are subject to VAT of around 23%.
Other fees include mortgage arrangement, mortgage administration and deed registration (all calculated at 1%); a survey fee of up to €1,000; and a commitment fee of approximately €500. There are also legal fees to consider, which may be as much as €1,000.*
If you are letting out a Portuguese investment property, you will need to pay tax on your rental income (a flat rate of 28%, although the income can be added to your other income and taxed at the normal scale rates).*
The cost of repairs, maintenance, insurance and local taxes can be deducted as business expenses. However, you cannot do the same with your mortgage interest or mortgage insurance.
Lastly, you will have to pay capital gains on the sale of any property that is not your main residence, although if you are a resident you can add this to your income and it will be taxed at the normal scalable rate.
Capital gains tax applies to any Portuguese property bought since 1989. Residents pay tax on 50% of any gain but are aided by inflation relief if they have had at least two years of ownership. Gains can be added to other income and taxed at the scalable rate (from 14.5% and 48%). If you are selling your main home and buying another inside Portugal or another EU/European Economic Area (EEA) country, you are exempt from tax on any capital gains.*
Blacktower in Portugal
Blacktower can help you make complete sense of your financial options in Portugal, including the potential benefits of investing in property in the country. Contact our representatives in the country today for more information.
*All fees and charges are approximate and/or correct at time of writing – check with your mortgage adviser for costs applicable to your particular transaction.
BLACKTOWER IN PORTUGAL
Blacktower’s offices in Portugal can help you manage your wealth to your best advantage. For more information contact your local office. The above does not constitute advice and guidance should be sought from an independent tax and mortgage adviser before making decisions.
By Manuela Robinson
Manuela Robinson is the Joint-Country Manager of Blacktower in Portugal. With offices in Quinta do Lago and Cascais.
[email protected] | 289 355 685
Blacktower Financial Management (International) Limited is licensed by the Gibraltar Financial Services Commission. Licence 00805B. Blacktower Financial Management Limited is authorised and regulated in the UK by the Financial Conduct Authority.