Portugal’s Property Tax May benefit Expats. - Property search

Portugal’s Property Tax May benefit Expats. - Property news

Portugal’s Property Tax May benefit Expats. - Real estate news

Portugal’s Property Tax May benefit Expats. - Property finder

Portugal’s Property Tax May benefit Expats. - House prices

Portugal’s Property Tax May benefit Expats.

Portugal’s Property Tax May benefit Expats.

Portugal’s property tax proposed last week by the Portuguese government on homes worth over €600,000 (£538,572, $660,108), may be “beneficial” for some of the thousands of British expats settled there, according to two leading tax experts.

 

Portugal’s property tax to ‘benefit’ some expats
The tax, which is an annual rate of 0.3% on properties valued at over €600,000, was announced as part of the country’s budget for 2017 and if approved by the parliament will come into force on 1 January.
The allowance applies per individual, so a married couple or those in a civil partnership would only face a tax on any jointly-owned properties over €1.2m. It also applies to companies and estates which each qualify for the €600,000.
The new property tax is likely to replace a more punitive stamp tax system which applied a 1% charge on homes valued above €1m, said Ana Duarte, director of private wealth at PwC in Portugal.
The stamp duty was abolished by Portuguese government finance minister Mario Centeno in last week’s budget.

Council tax
Speaking to International Adviser, she explained that the levy will be introduced under Portugal’s council tax system, known as IMI, which will be based on the tax value of the property – calculated by local government authorities – rather than using the market value of a property.
Portugal’s property tax  is only 0.3% and there are no bands or tiered system. At that level it’s not going to force expats to leave.
“The changes may be beneficial to some expats and disadvantageous to others.
“We are not expecting major impacts for expats living in Portugal.
“The taxable basis of the new property tax (AIMI) corresponds to the sum of the Tax Registration Value (TRV) of all the urban properties held by each taxpayer in Portugal, reported as at 1 January of each year, to which a tax rate of 0.3% applies,” said Duarte.

Lower tax value
Geoffrey Graham, senior partner at international law firm NDR, which has offices across Portugal, said that the tax value calculated via the TRV can often “bear no resemblance to the market value”, revealing that in fact “it is usually much lower”.
Duarte from PwC explained that in most cases the TRV is at least 30% lower than the property’s market value.
As a result, Graham believes it will “not have a significant impact” on the country’s property market or its status as a tax friendly jurisdiction for expats.
“Some property owners may in fact be better off under this regime,” he told IA.
Graham added that it is still unclear whether the proposed tax will “apply to single properties or accumulate on multiple properties or whether it will attach to the property or to the property owner.”

‘Negative impact’
However, John Westwood, managing director and founder of European IFA firm The Blacktower Group, said the planned property tax will have a “very negative impact” on Portugal’s southern coast, in areas such as the Algarve, often favoured by high net-worth expats.
Westwood added that although Portugal’s property market has seen “considerable improvement” over the last two years, this is mainly concentrated in the “very focused expats markets”.
“This sends a very negative message to an already nervous market just showing a fragile recovery.
“Portugal has a history of introducing taxes that directly impact the higher end of the market and overseas investors which make it difficult for some expat investors to consider long term planning within this jurisdiction,” he said.

No expat exodus
Jason Porter, director of IFA firm Blevins Franks, which specialises in advising expats in Spain, France and Portugal, disagrees, pointing out that the levy is being introduced in “quite a clever way”.
He compared the situation to Spain, which in 2012 saw an exodus of wealthy expats after tax authorities restored a previously abolished annual wealth tax of 2.5% on worldwide assets valued over €10,695,996.
In contrast, Porter expects the majority of Blevins Franks clients, most of whom as a couple have properties in Portugal valued between €500,000 – €1m, to fall outside the property tax threshold.
Portugal’s property tax is only 0.3% and there are no bands or tiered system. For a married couple or a civil partnership, in 99% of cases, it’s not going to impact them as they get a combined €1.2m allowance.
“At that level it’s not going to force expats to leave,” he said.

Using offshore companies
However, Porter raised concerns that many long-standing expats, who in the in the past used offshore companies to buy homes in Portugal, may find themselves hit by an unexpected tax bill once the new duty goes live as companies will not benefit from the higher couple’s limit.
“A lot of people probably took that advice and bought properties like this four or five years ago and they probably haven’t realised that things have changed and using a company they will only get a 600,000 limit,” he warned.
By Monira Matin

October 20, 2016 / by / in

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