October 17, 2022

Buying a property in Portugal, what are the costs?

Article by
Gonçalo Roxo

Buying real estate in Portugal involves additional costs and taxes, which you should be aware of. In this article, we list them for you.

Although it is the most significant part of it, the value of the house is only part of the investment. 

Buying real estate involves additional costs, which you should be aware of. In this article, we list them for you.

Costs you will face whether or not you take out loan

The process of buying real estate involves the following costs relating to two types of requirements:

- Taxes, and;

- Registrations.

Cost #1: Municipal Tax over Real Estate Transactions (‘IMT’) 

Whenever there is a financial transaction of purchase/sale of a property there is a payment of a tax called ‘IMT’ (acronym of Imposto Municipal sobre transacções onerosas de imóveis, which means Municipal Tax over Real Estate transactions). 

The ‘IMT’ is only paid on properties worth more than €92,407 and will vary depending on the purchase price or the property tax value (it is considered the higher value), the rate to be applied (from 1 to 8%) depends on the type of property, where it is located and what you use it for. 

It follows a specific formula:

[IMT = (Value of the property x Rate to be applied) – Portion to be deducted]

The rate to be applied as well as the portion to be deducted are determined in the IMT tables on the Portuguese Finance Portal (Portal das Finanças), you can also simulate on Doutor Finanças website here. These values are updated by the State Budgets. In very specific circumstances foreseen by law, the transaction can be exempted from IMT.

To give an example:  you want to buy house that is located on mainland Portugal for main permanent dwelling purposes, with a tax value of 200k and a purchase price of 250k. The IMT you will pay is the following: 
Consulting the IMT tables, you will see that for a property value from €172.348,00 to €287.213,00, the applicable rate is 7% and the portion to be deducted is €9.087,22. Therefore,

IMT = (250k x 7%) - € 9,087.22 = €8,412.78

Cost #2: Stamp Duty (‘Imposto do Selo’)

A Stamp Duty shall also be paid to the State and consists of a 0.8% tax on the value of the property.

Reusing the example above: 

Stamp Duty (‘IS’) = 250k x 0.8% = € 2,000

Cost #3: Municipal Tax over Real Estate (‘IMI’)

The IMI is an annual cost that falls upon all those who own a property. This amount is calculated based on a table issued by the Government, and the rate varies from 0.3% to 0.8% of the taxable value of the property (which is usually much lower than the purchase price). The taxable value of your property can be consulted at the Portuguese Finance Portal (Portal das Finanças). In very specific circumstances foreseen by law, the property can be exempted from IMI for a certain period of time.

Cost #4: Property registration

For the legal formalization of the transaction, the sale will need to be carried out and registered through a deed of sale of the property. This can be done in various places, such as at a notary's office or at a land registry office. Recently, the Portuguese State created Casa Pronta, which centralizes in a single place all the necessary acts for the deed (it is also possible to pay the applicable taxes here). At Casa Pronta, the deed costs € 375. At a notary’s office the costs may vary.

Cost #5: Additional costs

In addition to registration and tax costs, when buying a home consider other costs as well such as: insurance premiums, condominium fees, other fees, taxes and expenses such as the maintenance of the property, furnishing the house, water, electricity, gas, communications.

If you take out a loan, the following costs also apply

First of all, if you are going to take out a loan, as most people do, it is important to know that the bank will not lend you the full amount you will need. At most, you can get 90% of the amount. So, if you are thinking of buying a house, start by saving for the down payment and other initial expenses. Also, you should count the bank instalments (which comprise the interest you will be paying on the loan) as a fixed expense.

The purchase of a property with recourse to a loan from a bank has a wider range of costs. In addition to the above-mentioned costs, it will also be necessary to pay: 

Cost #6: Bank fees 

Banks charge fees for valuation, study of the file, etc. These fees vary according to the financial institution at stake, but on average you can expect to pay close to €1,000.

Cost #7: Stamp Duty over loan (‘Imposto do Selo’)

Bank loans give rise to the payment of Stamp Duty on the amount of the loan. Thus, you will bear a Stamp Duty of 0.6% on the value of the loan.

Going back to the example above:  if you get a loan that covers 90% of the sale price of the house (250k), your loan will cover 225k. You will then pay a Stamp Duty of 0.6% on this amount: 

Stamp Duty (‘IS’) over loan = 225k x 0.6% = € 1,350

Cost #8: Mortgage registration

The above-mentioned property registration was for that act only. Now, if you take out a loan, it is necessary to also register the mortgage on the property. At Casa Pronta, you would thus pay an extra € 375, in addition to the above-mentioned € 375.

Cost #9: Life insurance

Banks require payment of life insurance to cover the death of the contract holder. This amount will depend on several factors such as the insurance company, the amount owed and the client's health conditions.

Cost #10: Multi-risk Insurance

This will also vary, notably according to the value of the property.

In the face of the above, it is easy to reach the conclusion that it is important to be aware of all the costs involved in the purchase of a house, so that you can prepare financially for it. We advise you to start by building up savings to be able to pay for the initial expenses. 

For more contact me at goncalo@yourpropad.com or whatsapp +351911755200.

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