Buying a house in Portugal: taxes payable (IMT and Stamp Duty)

When buying a house, in addition to the value of the property itself and the money to be taken into account for other expenses inherent to the transaction, it is necessary to calculate the amount to pay in taxes. And in the case of a residential property, when it is acquired, two taxes must be counted: the Municipal Tax on Property Transfers (IMT) and the Stamp Duty. If you are selling a house, know that you have other responsibilities, but the payment of these tax charges is the buyer's obligation and not the seller's.

In this article, prepared by PwC for idealista/news, we list the main characteristics of these taxes, so that you know exactly the tax burden you will have to bear when buying a house.

IMT - what it is and how it is paid

It is a single installment tax, which must be paid and paid by the purchaser of the property, prior to the conclusion of the purchase and sale contract.

To settle this tax, it will be necessary to complete and deliver the IMT Model 1 declaration at any Tax Office or on the official website of the Tax Authority (Finance Portal) in case the declaration is submitted electronically.

It should be noted that notaries always require proof of payment of this tax (as well as Stamp Duty), and it is not possible to carry out the deed without the respective proof of payment.

How it is calculated

The IMT is calculated on the value declared in the purchase and sale contract (i.e., purchase price) or on the taxable patrimonial value ("VPT") contained in the land registry, if this is higher, and there may be cases in which the purchaser is exempt from this tax (see exemptions below).

In the case of a residential property, the amount of IMT to be paid depends on the following characteristics of the same:

Purpose: Permanent own housing or secondary housing;

Location: Mainland or Autonomous Regions;

Tax base: acquisition value or VPT, if higher;

Rate to be applied, which varies between 1% and 7.5%.

With regard to the rate to be applied, they depend on the purpose of the property (i.e., own and permanent residence or secondary residence) and result from the tables that are present in the IMT Code.

Taxation is made at progressive rates, when the amount that serves as the basis for the calculation of the IMT does not exceed the following amounts:

€574,323, when intended exclusively for own and permanent housing; or

€550,836, when intended exclusively for secondary housing.

In situations where the value that serves as the basis for the calculation of the IMT exceeds the amounts mentioned above, the single rate of 6% is applied to taxable amounts up to €1,000,000, and the maximum rate of 7.5% to taxable amounts above €1,000,0000.

It should also be noted that in the case of properties located in the autonomous regions and for the purposes of determining the rate to be applied, the values that serve as the basis for the calculation of the IMT contained in the tables above, are increased by 25% (e.g., in the case of properties located in an autonomous region, the rate of 7.5% is only applicable to taxable amounts above €1,250,000).

Practical example

Let's imagine the scenario in which an individual acquires a property located in mainland Portugal to allocate to his own and permanent residence, for the amount of €250,000. The VPT of the property at the date of acquisition amounts to €200,000.

In this case, the IMT will be calculated on the acquisition value (higher than the VPT), i.e. on €250,000.

Since the property is intended for own and permanent residence, the practical table below for the calculation of the IMT must be taken into account, which is available in Circular Letter No. 40118, of April 3, 2020.

The IMT calculation formula is given through the following formula: (250,000 € x 7%) – 9,087.19 € = 8,412.81 €. Thus, in this scenario, the IMT due by the buyer of the property will amount to €8,412.81.

Exemptions

However, some IMT exemptions are foreseen. We present below, succinctly, those that are usually applicable when purchasing a residential property.

a) Acquisition of own and permanent housing

It is possible to be exempt from paying IMT if the property to be purchased is intended for own and permanent housing, and provided that the value that serves as the basis for the calculation of IMT (greater between acquisition value or VPT) is less than €92,407. For properties located in the Autonomous Regions, this limit amounts to €115,508 (i.e., it is increased by 25%).

b) Urban rehabilitation regime

An IMT exemption is also foreseen for the acquisition of urban buildings intended for urban rehabilitation interventions.

In practice, this benefit operates through the reimbursement of the IMT paid by the purchaser, at the expense of the competent tax service, up to 15 days after communication by the city council of the area of the building's situation of the effective completion of the rehabilitation works, and issuance of the certification of the state of conservation resulting from the works or energy certificate, if later.

In order to benefit from this exemption, it is necessary to comply with a series of formalities and some conditions must also be met, among others:

the building must be inserted in an urban rehabilitation area ("ARU") or have been built more than 30 years ago;

the building will be subject to building rehabilitation interventions promoted under the terms of the Legal Regime for Urban Rehabilitation ("RJRU");

its conservation status increases by two levels and has at least one good level;

if the energy efficiency and thermal quality requirements applicable to buildings are met;

The rehabilitation works begin within a maximum period of 3 years from the date of acquisition.

Additionally, also under the urban rehabilitation regime, there is also an exemption from IMT for the first transfer of the property after the rehabilitation intervention (i.e., acquisition of a rehabilitated property), provided that it is allocated to (i) lease for permanent housing, or (ii) in the case of buildings inserted in ARU, is allocated to own and permanent housing.

Stamp Duty

Stamp Duty is calculated at the rate of 0.8% (single rate), levied on the same basis calculated for IMT purposes (i.e., value declared in the purchase and sale contract or VPT, if higher).

Like the IMT, this tax is borne by the buyer of the property, and must be paid and paid prior to the conclusion of the purchase and sale contract.

In practice, the Stamp Duty collection document is generated by the submission of the IMT Model 1, (i.e., when submitting the IMT Model 1 declaration, not only the IMT collection document but also the Stamp Duty collection document is generated).