Legal Steps

The legal regulations are very specific when buying a property in Portugal; however, it is always advisable to use qualified legal advice in any transaction.

It is also important to insure that any plans in the Town hall referring specifically to the property do physically agree with the existing construction. A property for living purposes must also have the following documentation.

(a) Habitation License for property constructed after 1951

(b) A Certified insertion in the records of the Land Conservatory

(c) A detailed "Caderneta Urbana" from the Tax Office

Commercial and Industrial properties require both Points (b) and (c)

In the case of a rural property the following extra documentation is necessary which is a detailed and up-to-date "Caderneta Rustica" from the local Tax Office.

Each Town hall and Tax Office tends to have local interpretations of the laws and regulations and these should be first checked prior to a purchase. It is recommended to implement legal and other specific searches prior to acquiring a rural property.

There are laws regulating Estate Agency practices and each Agent must have a License granted by the State. The present laws are limited in their usefulness and protection of any of the parties involved in a transaction, and are appear designed more as a vehicle for acquiring a State income.

The practice is for the seller of a property to pay a commission to an Agent but it is not a controlled percentage as it does vary from area to area.

Buying in the Algarve

After choosing a property in the Algarve there are several steps you need to go through in order to buy it.

* Get a mortgage
* Pay the deposit
* Get a fiscal number
* Agree the promissory contract
* Pay your property transfer tax (IMT)
* Take possession of the deed
* Register your Algarve property purchase

If you need to apply for a mortgage, it will be best to start this process and get bank approval before giving any non-refundable deposit on your property in the Algarve. Usually buyers give a deposit to the vendor or the real estate agent. If you are going to give a deposit to the vendor, it should be done after getting bank approval for your mortgage; if to an agent, make sure you know if the deposit is refundable or not - when purchasing a property in the Algarve, deposits are not always refundable.

In order to buy a property in the Algarve you need to have a Portuguese fiscal number. For this you will need a legal representative who is resident in Portugal (usually a law office).

After 'reserving' your Algarve property the normal next step is the a promissory contract. This is a document between you and the vendor where you both write down the conditions of your agreement - things such as price, payment conditions, time to completion, and other specifications. Before signing the promissory contract you should see the registration of the property to ensure that it belongs to the vendor and there is no current mortgage on it, or any charges or obligations.

At this stage of the Algarve property buying process it is highly recommended that you take legal advice.

Following agreement of the promissory contract you will need to pay your IMT - Imposto Municipal sobre Transmissões de imóveis - which is a property transfer tax payable only once when you are buying a property in the Algarve.

The IMT tax must be paid before any transfer of ownership of a property located in the Algarve can happen.

Normally the property transfer tax is paid before the final deed changes hands, but sometimes it has to be paid with the promissory contract, usually if you take possession of the property with the promissory, or if the promissory contract includes a clause allowing the buyer to transfer their position on the contract to a third party.

If you have a solicitor, he or she will arrange for your property transfer tax to be paid.

Table 1

Residential Purchase (Only home)

Table 2

Holiday/Second Home

Note that sometimes the IMT value of an Algarve property is calculated on the VP (valor patrimonial) if this is higher than the price of the property. Valor Patrimonial is the value the finance department will determine for the property, and it will depend on the area, the location, the age of the property and the services aggregated such as swimming pool, garden, garage. This value is established only for fiscal matters and is usually about 80% of the market price, but sometimes it can be higher.

After paying the property transfer tax (IMT) you may take possession of the deed for your Algarve property.

The deed is a document prepared at the notary that transfers the ownership of the property to the buyer. At this stage the property should be clean and free of any charges because you are going to buy the property as specified in the deed.

Lastly, you will need to register your purchase of a property in the Alrgarve, something which takes place at the property registration department and finance department.

Algarve notary fees

Notary fees on Algarve property range from €200 to €400 depending on the purchase price; the 'notary' is the person who has the power to prepare the deed.

Algarve property stamp duty

Stamp duty is 0.8% of the purchase price of the Algarve property. If you have a mortgage, you'll pay also this tax on the amount of the loan.

Algarve property registration

Registering your purchase of a property in the Algarve usually costs €175 for each act at the property registration department (usually the purchase and the mortgage).

Algarve solicitor fees

Solicitors usually charge 0.5% to 2% of the purchase price, depending on what the price of the Algarve property actually is.

Algarve council tax

IMI - Imposto Municipal sobre Imóveis - is a Council Tax on property ownership. Any owner of a property located in the Algarve must pay this annual tax, which is calculated on the Valor Patrimonial (see above). IMI is a local tax, payable to the local council, and it will differ according to where in the Algarve your the property is located. It is normally between 0.2% and 0.5% of the Valor Patrimonial. IMT will be charged to the person who owns the Algarve property on the 31st December. The tax is paid to your legal representative, half in April and half in September

Algarve income tax

If you wish to let out your Algarve property, non residents will pay 15% of the rental income in tax. Some expenses may be deducted, such as IMI tax for example.

Algarve capital gains tax

When you sell a property in the Algarve for a higher price than you paid for it, you have to pay a tax on your capital gain. Your capital gain is the selling price minus the purchase price, less deductible expenses such as IMT tax, deed, stamp duty, registration and any agent commission. You'll pay 25% in tax on your capital gain in Portugal, but the definitive tax will be computed and due in the country where you have residence, usually deducting the amount of tax already paid in Portugal.