Cheaper and faster traveling, cheap finance, underperforming pensions and a volatile stockmarket make buying a property abroad an attractive proposition. But buying abroad is VERY DIFFERENT from buying one in the UK and also varies considerably from country to country. So, whatever you do, NEVER buy or sign anything on impulse and ALWAYS use a solicitor. Also, some of the biggest mistakes are made because of language misunderstandings, so it’s a very good idea to use an interpreter.
DO YOUR HOMEWORK
Before you even start to look for a property, you need the answers to some important questions –
- Why are you buying a property abroad? Will it just be a holiday home you use 2 or 3 times a year and let it out for the rest of the time?
- Do you intend to live there for a significant part of the year or do you intend to move there permanently?
- How much can you afford to spend without stretching your finances too much? Will you be getting a mortgage or paying cash?
- If you intend to let it out, will you be finding tenants/collecting rents/organising repairs yourself or will you be getting a Managing Agent to look after everything for you?
- Do you want a new or existing property?
- Do you want to be on a community development?
The answers to these questions will have a big influence on the type, size and location of suitable properties. For example, if you will be letting the property, it needs to be in a tourist area and close to shops, restaurants, bars etc but if you intend to live or retire there, you’ll want to be away from these areas but still close to amenities, shops etc. Also, remember that it does rain in Portugal and it can also get quite chilly, but not all properties are suitable for year round living because they may have inadequate heating and insulation, so choose carefully.
There are also a number of arrangements you will have to make before buying. You may need to set up a bank account in Portugal. If you will be spending more than 6 months of the year in Portugal, you will need to apply to become a resident. Property in Portugal is subject to Portuguese laws, so you would be advised to draw up a Portuguese will.
THE BUYING PROCESS
Although you don’t need to use an Estate Agent, use one who is ‘Government licensed’ and has an ‘AMI’ NUMBER. Further, it would be folly to buy without a Solicitor. When you have found the right property and want to make an offer, this must be confirmed in writing. The contract must be signed by both parties in the presence of a Notary and must refer to all relevant documents, the currency of the transaction and Conditions of Sale. A deposit (between 10% and 30%) will be required and, if the purchaser backs out, he will lose the deposit and if the seller backs out he has to pay double the deposit.
A number of other legal documents are also required, including –
- a PERSONAL FISCAL NUMBER (Numero fiscal de contribuinte)
- PROPERTY REGISTRATION CERTIFICATE (Certidao de Teor). The local Land Registry (Conservatoria do Registo Perdial) will show if the seller is the legal owner and also if there are any charges or mortgages over the property.
- PROPERTY TAX DOCUMENT (Caderneta Perdial). This identifies the owners fiscal number, the property fiscal number, the description of the property and the amount of local taxes.
- LICENSE OF USE (Licenca de Utilizacao) from the Town Hall. This shows if the property is approved for the purposes of the original Planning Permission. For residential property, a ‘habitation license’ will also be required.
- TRANSFER TAX (Imposto de Sisa). This must be paid before the Final Deed. The amount depends on the price of the property.
- The FINAL DEED (Escritura).
- REGISTRATION (Registo). The property must be registered in your name at the Land Office and in the Local Tax Office.
The SISA or Property Sales Tax has been reduced and is now between about 4% and 7% of the purchase price. Inheritance tax on transfers to spouses, children and parents no longer applies, otherwise it is 10%. Capital Gains tax is not payable if the proceeds are rolled over to purchase another property.
Also, don’t forget that there will be living costs as in the UK. These could include Local rates, Property tax, Insurances, Water and Electricity charges, telephone, Tax on rental income etc.
This is not a complete list of all the matters you will have to deal with, but it will give you some idea of what you will face if you buy property in Portugal – Good luck!