Ride the Portugal property wave now

There was a time when investing in Portugal did not seem like a prudent option for the expat investor living there, yet today, with innumerable tech startups and a whole host of innovative firms operating out of the country, 2019 could well be the year in which Portugal really begins to pay out to investors.

There are signs that this may be particularly true of the Portugal real estate market, which, taking its cue from activity in Lisbon, is increasingly an investment of choice for international property investors and property development companies who are looking to take advantage of some of the best returns available in Europe.

“Everyone is talking about Lisbon now,” a private equity investor recently told international services firm PricewaterhouseCoopers to mark the Portuguese capital’s first place ranking on the Emerging Trends Europe leader board.*

There are various reasons for Lisbon’s and Portugal’s popularity: one is the dwindling confidence in neighbouring Barcelona and Catalonia generally, another is the sheer number of international corporations looking to locate their service centres and business process outsourcing operations in Portugal.

And why not? The country offers relatively low labour costs and low property prices, while at the same time promising to deliver a high level of predicted growth, so it is ideal for any firm that is expansion-focused.

However, shrinking supply combined with increased demand could well mean that the next two or three years will be marked by sharp rises in Portugal’s real estate investment market, both in the residential and commercial sectors, and if investors don’t move quickly, it could soon be too late to reap the benefits.

One thing is for sure, things are getting competitive and exciting.

For expat investors who choose to ride the wave – hopefully before it crests – there are a number of tax considerations to be aware of when investing in property in Portugal.

Tax on rental income
Many British expat investors choose to invest in the Portuguese property market. Whether this is part of a long-term retirement plan or as a way of earning extra money from a second home in Portugal, buyers need to be aware that if a Portuguese property is earning income, there will be a tax liability. For non-residents a flat rate of 28% applies, with some deductions allowed, although these do not include mortgage interest.

Property wealth tax
The Portuguese property wealth tax – Adicional ao Imposto Municipal Sobre Imóveis (AIMI) – is an annual tax applied to all qualifying Portuguese real estate and is levied regardless of the residence status of the owner. It applies to all property assets worth more than €600,000 – married couples and civil partners have a combined threshold of €1,200,000. Depending on particular circumstances, the tax may be imposed at a rate of 0.4%, 0.7% or 1.0%.

Capital gains
Any gains from the sale of your main residence are free of capital gains tax if you can prove that you are reinvesting all of the proceeds in a new home, even if this is back in the UK or elsewhere.

Money under the table
There was a time when property sales in Portugal often involved cash being paid under the table. These so-called ‘black money’ transactions are illegal and increasingly a thing of the past. However, if, as an expat investor, you are offered such a deal, you are unlikely to benefit in any way as underreporting a property’s sale value is only likely to mean a higher capital gains burden in the future. Avoid ‘black money’ transactions at all costs.

Helping you make sense of the market
The Confidencial Imobiliário Residential Price Index reports that the cost of Portuguese property was up 15.6% in September 2018 when compared to the same period the previous year. Furthermore, it also reported year-on-year increases of over 10% for every month since July 2017.

The Land Institute predicts that “after the heyday of mature markets, interest is now moving to small but dynamic cities” such as Lisbon, with the Portuguese capital predicted to outperform cities such as Berlin during 2019.

So, does this mean that the opportunity for investment in the Portuguese market has already peaked? And what does investment in the property market mean for the expat and retirement investor in Portugal, particularly in regard to wealth management and tax efficiency?

As an experienced cross-border wealth manager, Blacktower is ideally placed to help you make sense of these questions and more.

*page 38, Emerging Trends in Real Estate – Creating an impact: Europe 2019, available to download at www.pwc.com

The Blacktower Group was formed in 1986 and has earned its reputation providing wealth and management and pensions planning advice to clients in the UK as well as those who are resident abroad. Our proven and bespoke service can help you accomplish your financial goals. With an office in the Algarve and Cascais and representatives servicing expats all over Portugal and Madeira, we can help you today by calling 289 355 685 or 214 648 220, email [email protected] or visit www.theblacktowergroup.com

By Manuela Robinson

Manuela Robinson is the Joint-Country Manager of Blacktower in Portugal. With offices in Quinta do Lago, Cascais and representation in Madeira.

[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.