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Buying Property in Portugal - the basics.
Costs
Terms explained
Things to do when you move in
Mortgage Approval
1. Research the area.
There are lots of companies selling property in Portugal. Firstly, we recommend that you do a bit of research on the area where you are considering buying. If you are going to spend hundreds of thousands of euros on a property, why not spend a couple of euros researching the topic. Click here for books on buying property in Portugal. (From Amazon)
2. Put together a checklist of what you want -
e.g. near to golf courses, close to the beach or city, number of bedrooms etc.
3. Find a Property.
4. Get a Structural Survey.
Most people buying property in Ireland get a structural survey to insure that the property in in good shape. It is advisable to do the same when you are buying a second hand property in Portugal (or elsewhere)
5. The conveyancing system is very different to the system of buying in Ireland. In general, it is possible to make similar 'searches' or enquiries to those we make when you buy a property in Ireland. But, it is important to note that The Portuguese 'Notary Public' who you sign the legal documents and land transfers in the presence of is NOT there to give legal advice to either the buyer or the seller, but is only there to witness the signatures and to deal with certain administration functions. It is therefore very important to get independent legal advice which can usually be arranged through your estate agent.
6. Get legal advice (on whose name you should purchase the property in)
There are a number of options open to you, each with advantages and disadvantages. It is very important to look at these options (in conjunction with looking at your existing will, and consider getting a Portuguese will). The potential tax savings of setting it up properly at this stage are huge down the line as the Portuguese system of Inheritance tax can attract very high rates of tax. If you gain nothing else from this guide, please take note of this. The options for purchasing the home are:
- Buying the property in your own name
- In joint names with your partner
- In your children's names who will eventually inherit the property
- In the name of a limited company - Irish, Portuguese or an 'off shore' company.
- By way of a Family Trust
This guide is general. There is no substitution for legal advice. We suggest that you get legal advice so that you can buy the property in the most tax efficient way.
7. Finance.
Mortgages can be arranged through some Irish lenders or through a local Portuguese lender. Getting finance by way of re-financing your existing mortgage can allow you to borrow enough to cover 100% of the purchase price, all fees and additional costs such as buying furniture. Because Ireland and Portugal are both members of the Euro, there are no currency fluctuation problems to worry about.
Generally speaking, local lenders will lend 60 - 70% of the property price.
Arrange the finance for your overseas property by refinancing your Irish property.
Terms (back to top)
Contribucao Autarquica - local rates calculated on the official value of the property.
Escritura
This is the title document containing a detailed description of the property, showing the ownership of the property. Under Portuguese law you need to sign the Escritura in front of a Portuguese Notary Public.
Fiscal Representative
If you are buying a home in Portugal as an investment or holiday home rather than living there all year round, Portuguese Law requires you to appoint a someone to act as your 'Fiscal Representative'. This person will receive any correspondence from the tax authorities. The fiscal representative is up to you who to choose - a friend, tax adviser or lawyer.
Imposto sobre o valor acrescentado (IVA)
VAT - paid when you are building a property. All the building materials and builder fees are usually charged at 17%.
Imposto de Selo
Document tax or stamp duty - usually around 1% of the property price.
Imposto sobre o Rendimento das Pessoas Singulares - Income tax
Notary
The legal system in Portugal is different than the system in Ireland. In Ireland, you use a solicitor who looks after your interests in the deal. The Notary is a public official who neither works for the vendor nor the buyer, but whose function is to record the fact that the title deed showing the sale & purchase of the property has been signed in front of him and that it is understood by both sides.
Numero de Contribuinte
All foreigners need to to get a tax identification number even if you are not a full time or tax resident.
SISA
SISA is a tax payable on the value of the property varying from 0 - 10% of the property value (less the value of fixtures and fittings).
Costs. (back to top)
Preparation of the Escritura (+ Land Registry fees)
The costs vary but would typically be around 1.5% - 2% of the property price.
SISA
SISA is a tax payable on the value of the property varying from 0 - 10% of the property value (less the value of fixtures and fittings).
VAT - (Imposto sobre o valor acrescentado) (IVA)
Paid when you are building a property. All the building materials and builder fees are usually charged at 17%.
Power of Attorney - If you do not wish to be in Spain when the title deed need to be signed you can arrange for a lawyer to sign on your behalf. The typical cost would be approx. £200.
Surveyor - If are buying a second hand property it's wise to get a structural survey to insure that the property is structurally sound
Finance - If you are re-financing your existing Irish property to raise finance for buying overseas, you would be liable for Irish legal fees and outlays in relation to you existing title deeds.
Now that you have bought the property - what else do you have to do? (back to top)
If you are buying the property in Portugal as a holiday home or as an investment (or if you spend less than 183 days a year in Portugal) you are considered a non-resident. You will have to:
- Appoint a fiscal representative in Portugal
- Make a Portuguese Income tax declaration and pay tax on any income you earn in Portugal
- Pay local rates - Contribucao Autarquica
- Make a declaration of all your capital assets in Portugal and pay wealth tax on them if necessary
- Pay utility bills (direct debits through your bank may be the best idea)
If you are planning to live or work in Portugal, you will have to consider:
- Apply for work permit or permits to open a business
- Import your car, furniture etc
- Arrange for your pension to be paid in Portugal
Mortgage Approval. (back to top)
The way most people raise finance for an overseas property, is by refinancing their Irish Property - assuming that you have enough equity in your Irish property, this could allow you to borrow 100% of the property price + additional funds for the costs you incur such as your property taxes & legal fees etc. Apply for approval
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