When buying a property in Portugal, several important financial matters must be considered and planned carefully as early as possible in the process. Here are our Top Ten Financial Tips for Portuguese property buyers.
1. What is your total budget?
How much money do you have to spend on your property, the property buying process – including fees – and its ongoing upkeep and maintenance?
2. How will you fund the property purchase?
Will you be buying with a mortgage, by releasing equity from another property, or are you paying cash? If looking to take out a mortgage it is worth noting that, generally mortgage availability for foreign nationals is good. In recent years, conditions have improved, and there has been increased interest from Portuguese lenders to assist foreigners to buy property. This has led to many deals becoming cheaper. Rates now start at just 2.5 per cent for a variable rate of up to 80 per cent loan to value on a minimum loan of 100,000 euros. It is important to only ever use officially approved lenders and to always take legal advice before signing any binding documents. It’s a good idea to bear in mind that the options available will change constantly, and you will need to make sure you understand exactly what your requirements are for any options available to you – particularly in term of the terms of the loan and your monthly repayments.
3. Have you considered your additional costs?
This includes property viewings and visits to the country prior to buying the property, along with legal fees, agent fees, taxes, valuation and registration costs, and exchange rates when making money transfers between countries.
Hidden costs of buying a home in Portugal include notary fees (approximately €500), independent solicitors’ fees (around 1-3 per cent of the total purchase price), and stamp duty (somewhere between 0.4 and 0.8 per cent of the purchase price).
You will also need to pay a Transfer Tax (Imposto Municipal sobre Transamissoes – IMT) which is levied on properties based on a number of factors, and will depend on the price of your property and whether this will be your primary residence. The cost of this tax will generally be your largest additional cost.
Speak to your Estate Agent if you have any concerns or if you require a recommendation, then we will be happy to help.
4. Have you thought about currency market movements and how they may affect your property price?
The currency market is continually fluctuating, making it important to open an account with a currency specialist like Halo Financial as soon as you know you want to move to Portugal. This is because the changing rates will affect the cost of your property in Sterling – and could even take it beyond your budget. By opening an account with them in advance, you can take advantage of not only the expertise of their Currency Consultants, but also the numerous tools and resources that they offer to help you work around the currency fluctuations and even plan them into your budget. By opening this account in advance you can have the money ready to move as soon as you find your dream home in Portugal.
5. Have you thought about the ongoing costs associated with owning a property in Portugal?
You will need to ensure any regular bills and mortgage payments are covered, as well as ongoing maintenance, amenities, and so on. Remember that if you are paying these in another currency, the same currency market movements mentioned above will affect the price of these payments. Consider any recurring and regular payments and discuss how you could potentially save money on these with a currency specialist such as Halo Financial.
6. Have you found reliable estimates for removals and shipping costs?
This will particularly important if you are moving permanently to Portugal, and you will need to ensure these are included in your overall budget. Find a professional relocation and removals firm to give you a quote. If you are purchasing a home for investment purposes, and therefore not planning on moving any belongings to the country, then you will need to ensure that the house you buy is furnished or budget to furnish it once you have bought it. Unfurnished homes command less rental value than furnished ones, and are therefore harder to find tenants for. Contact us for a list of recommended removal companies.
7. Have you considered any inheritance implications?
This includes Inheritance Tax, your will, and the effects of the property purchase on your estate. Inheritance tax was actually abolished in Portugal in 2004 for close family members such as spouses and children. Otherwise inheritance tax, which is now called Stamp Duty, is payable at a rate of 10 per cent. However, if you are still classed as a UK resident (or domiciled in the UK) then your Portuguese property, along with any other Portuguese-based assets will form part of your estate for UK inheritance tax purposes. It’s also worth noting that, should you wish to sell your property, you will be subject to a capital gains tax, whether you are a resident of Portugal or not. It is essential to seek independent financial advice from a qualified expert regarding any financial issues associated with purchasing a property in Portugal.
8. Have you opened a bank account in Portugal?
Many banks here do offer specially tailored non-resident accounts, so it is possible to set up an account in advance of your move. As a non-resident, the services you will be eligible for are extremely limited but it is often useful to have an account purely for transferring currency in to (and out of).
If you wish to open an account with a Portuguese bank while you are abroad, then you must first obtain an application form, available from foreign branches of Portuguese banks or direct from Portuguese banks in Portugal.
It is essential to check that there is a branch of that bank close to the location where you will be buying your property, or where you are planning to move. To open an account as a resident you will need to be in possession of a residence card (Autorização de Residência) or Citizen Card (‘Cartão de Cidadão’) which contains details of your tax number (‘Numéro Fiscal de Contribuinte’) and home address. Banking in Portugal is not free.
There are monthly fees charged by each bank, and you may even have to pay extra to use certain services. Even opening an account will cost money in most instances. Fees and charges differ by the bank, and the account/services you require, so it is worth shopping around for the account you require.
9. Have you thought about if you will manage any salary or pension payments?
If you are moving to Portugal long-term, ensure that your salary or pension can be paid directly to you. The UK basic state pension is payable in Portugal. Pensions that remain in the UK are subject to unique tax liabilities and obligations. Transferring these pensions to another jurisdiction under the Qualifying Recognised Overseas Pension Regime (QROPS) can help you protect your pension funds from double taxation and UK inheritance taxes and charges. It is essential to seek expert advice from an independence pensions/financial expert before taking any action regarding financial issues. Contact us for details of our partners who can help.
10. Salary and income tax information
The average salary in Portugal for the tax year ending 2016 was just over 13,500 euros a year. If you are classed as tax resident in Portugal (you have lived there for more than 183 days in the tax year) then you must pay tax on your worldwide income. If you reside there for less than 183 days, then you need only pay tax on income earned in Portugal.
Income tax in Portugal is progressive: the more you earn, the higher your rate. There is no income tax threshold. The lowest earners – those that earn less than 7,035 Euros annually – are taxed at a rate of 14.5 per cent. The next group – 7,036 – 20,100 Euros – pay 28.5 per cent; those earning between 20,101 to 40,200 Euros pay 37 per cent; while those earning between 40,201 and 80,000 Euros pay 45 per cent. The highest earners (those who are home more than 80,001 Euros a year) pay a tax rate of 47 per cent on their earnings.
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