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 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.
“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.
