• Non-habitual residents scheme offers tax-free income from overseas for 10 years
• Choose property in Portugal to avoid paying inheritance or gift tax
• Legally avoid capital gains tax entirely when reinvesting in another main residence

Buying a property overseas is an exciting venture, but also one that requires careful financial consideration. To help ease the process, Chris White, Founding Director of boutique estate agency Ideal Homes Portugal, has compiled his top tax tips for buying property in Portugal.

Portugal has been called ‘Europe’s best kept secret’ by PWC so far as individual taxation is concerned. This is due to a number of advantageous tax rules. It also offers some distinct advantages over other European countries when it comes to property ownership.

The first top tax tip from Ideal Homes Portugal is to consider the non-habitual residents scheme, which came into force in 2009. Under the scheme, foreigners who reside in Portugal and who meet certain criteria are exempt from paying tax on most forms of income from overseas, including pension income, for a period of ten years. This can make a vast difference to UK buyers looking to withdraw a lump sum from their pension in order to buy a holiday home in the sunshine – something that they would be taxed heavily on if they did it while resident in the UK.

Another tip is to think about to whom you plan to pass your property as part of your estate. For those wishing to leave their property to their spouse, descendants or ascendants, Portugal is the ideal location, as this will incur no inheritance or gift tax. It means that you can purchase your dream property – this three bedroom linked villa on a closed condominium with stunning golf course views, or a detached villa with its own pool, for example – and enjoy the peace of mind of knowing that future generations will also be able to enjoy it.

Capital gains tax can also be advantageous in Portugal when compared with other EU destinations, though it’s a complicated issue and can actually become costly. Ideal Homes Portugal’s Chris White explains,

“The amount of capital gains tax that you pay depends on your residency status. For properties purchased after 1989, residents of Portugal are taxed on only 50% of the gain they have made during their ownership of the property. And if they have owned the property for two or more years then they can benefit from inflation relief too. The gains are considered as income and taxed at the banded rate that is applied based on your overall income. The bandings go up a sliding scale to a top rate of 48%.

“However, there is an exemption for gains made from the sale of your main residence, provided you put the money back into another main home within three years.”

There are certain other requirements relating to capital gains tax in Portugal and White strongly recommends, as with all taxation matters, obtaining professional advice.

His third tax tip is one of which many of those looking to purchase property in Portugal are unaware: namely that any income made by renting out your property when not using it yourself is subject to taxation in Portugal. Income from short term rentals is taxed at a rate of 25% on 15% of the income. So of €1,000 of income, €150 would be liable to taxation at a rate of 25%.

This means that even if you live in the UK and just rent your Portuguese property out to friends at “mates’ rates” twice a year, you technically need to complete a tax return in Portugal for the duration of your ownership of the property. A double taxation treaty means that you will then not have to pay tax in the UK on the income from the property.

Finally, find out what the Immovable Property Tax (IMI) rate is in the area where you plan to buy. This varies from 0.3% to 0.5% depending on the decisions of the local municipality, the location of the property (rural/urban) and the last time the property was valued.

Overall, there are some significant advantages to buying and owning property in Portugal. Chris White concludes,

“Tax information in Portugal can be tricky and of course tax law does change from time to time, so professional advice should always be sought, but there are definitely benefits of owning property here when compared with owning in England or in other European countries. With the right advice, buyers often find that there are distinct advantages to buying their dream holiday home in Portugal.”

For further details call Ideal Homes Portugal on 0800 133 7644 or +351 289 513 434, email enquiries@idealhomesportugal.com or visit www.idealhomesportugal.com.

• Head east for a taste of authentic Portuguese life
• Embrace your childish side in the waves at Praia da Rocha
• Make for Quinta do Lago if golfing is your passion

Owning a property in Portugal’s Algarve can be an extremely rewarding experience, but how do you know what and where to buy? Buying overseas generally offers a lot less scope to familiarize yourself with an area than buying a domestic property does, so advice and guidance from experts ‘on the ground’ can play an important role.

“Always go on an inspection trip before you buy,” suggests Chris White, Founding Director of boutique estate agency Ideal Homes Portugal, “But be sure to consult with local residents as well. Use their knowledge to help inform your thinking, as they will be able to offer insights into an area that you won’t be able to gleam from an inspection trip alone, or even a couple of weeks on holiday.”

What and where you buy will of course depend on your motive for the purchase. To help buyers think through what it is that they want from the Algarve, Ideal Homes Portugal has produced a round-up of motives for buying and suggested locations, so that second home purchasers can use their experience to get to know the Algarve a little better before they commit to buy in a particular area.

The Ideal Homes Portugal Algarve round-up

For the best beach, head to Praia da Rocha at the city of Portimão. This huge expanse of sand provides plenty of room for everyone, even during the height of summer. Families with young children will appreciate the plentiful cafés and restaurants based along the wooden boardwalk that runs beneath the cliffs backing the beach. Those looking for more high adrenaline thrills can hire jet-skis and similar from the shore, or head to the eastern end of the beach to participate in various sporting activities on the sand.

In the peak summer season, an inflatable play area is anchored a little way out to sea for those who want to swim out and charge around like giant children in the sunshine. Meanwhile those who prefer peace and quiet can walk along the sands and around the rocky outcroppings towards Alvor to escape the crowds – it is a beach with something for everyone.

A three bedroom duplex apartment with sea views and pool between Praia da Rocha and Alvor costs €319,000.

For authentic Portuguese life, the eastern Algarve town of Tavira has to be the place. Though the town does attract its fair share of tourists during the summer, the winter months are ideal for enjoying Portugal in peace, from bartering at the fish market with the locals in the morning to strolling along the river and enjoying a coffee in the afternoon sunshine.

Enjoy the authentic life from an historic base, with a two bedroom apartment in a converted convent, just minutes from the centre of Tavira, for €270,000.

If living like a local sounds a little too authentic, then opt for an area teeming with expat life instead. One of the best areas for expat life is Praia da Luz. This small town includes a small English supermarket and a pub serving fish and chips and is an ideal location for those who can’t quite bear to leave the comforts of home behind when they head overseas.

A luxury, seafront villa with hot tub and private roof terrace in Praia da Luz costs €825,000.

For the best golf in the Algarve, it has to be Quinta do Lago. This upscale resort is a favourite with celebrities, politicians and sporting stars. Expensive restaurants and pricey bars abound and there are enough marinas and chic, boutique stores scattered around to keep Portugal’s wealthiest residents and visitors thoroughly entertained.

Property at Quinta do Lago is far from cheap. A four bedroom villa overlooking the golf course with heated swimming pool is priced at £2,900,000.

Head back to the eastern Algarve for some of the region’s most attractive investment properties. Rental income can be a great way to cover some of the costs of owning overseas. Be sure to opt for a popular tourist area, such as the seaside village of Cabanas, which is packed with visitors from May to September.

A two bedroom apartment on a popular development with extensive communal pool in Cabanas costs €177,500.

For city life, Albufeira is a good choice, particularly for those looking to set up a business in Portugal as the thriving community is a great base for entrepreneurs. As well as being packed with shops, restaurants and everything you would expect from a modern city, Albufeira is also home to some beautiful beaches, which are popular tourist spots during the summer months.

A three bedroom villa with shared pool in a great city location in Albufeira costs €375,000.

Whatever your motivations for buying, Portugal is a fantastic location to own a second home in the sunshine. The Algarve’s 300+ days of sunshine per year are a delight to those used to the UK’s climate and the choice of budget airlines to fly with make getting there efficient and economical.

For further details call Ideal Homes Portugal on 0800 133 7644 or +351 289 513 434, email enquiries@idealhomesportugal.com or visit www.idealhomesportugal.com.

• Portuguese house prices up 2.9% (INE)
• Portuguese rents rise for the first time in 3 years (RICS/Ci)
• Chinese buyers opt for homes in Lisbon (Savills)
• Brits make up 80% of buyers at Ideal Homes Portugal

Things are looking up for the Portuguese property market. The House Price Index (HPI) from Statistics Portugal (INE) has reported that house prices in Q2 2015 were up 2.9% on a year before. When compared to Q1 2015, the HPI increase reached 3.7%.

In addition, the latest RICS/Ci Portuguese Housing Market Survey reported that demand has outpaced supply when it comes to the Portuguese property market. Rents have risen for the first time in more than three years and house prices are continuing their modest recovery.

When it comes to buyers from overseas, every country has their preferred location for second homes. Recently released data from Spanish homebuilder Taylor Wimpey España has highlighted Germans’ love of Mallorca, with purchases by Germans increasing 160% in the year to August, while Italian fractional ownership company Appassionata has been flooded with enquiries from the US of late.

So, who’s buying in Portugal, where and why?

Chris White, Founding Director of boutique estate agency Ideal Homes Portugal, comments,

“The demographics of Portuguese property ownership are really interesting right now, particularly when it comes to buyers from overseas, as there are clear national preferences being shown. Portugal offers several distinctly different regions, so buyers can choose according to what they prefer.”

According to Savills, many Chinese buyers are opting for homes in Lisbon, where a four bedroom apartment in an exclusive area can be snapped up for €986,250. Portugal’s golden visa scheme has been a major draw for Chinese property investors looking to move to Europe. By June 2015, some €1.46 billion had been generated by the scheme, with more than 80% of the visas issued going to Chinese buyers.

While the Chinese are enjoying city life in Lisbon, British buyers are overwhelmingly heading for the sun, sea and golf courses of the Algarve, preferring the relaxed beach lifestyle to the pace of the city. Some 80% of Ideal Homes Portugal’s buyers hail from the UK, with the rest made up of Portuguese, Irish and French buyers.

According to Savills, the established, luxury resort of Quinta do Lago is enjoying a sustained recovery, with sales there increasing by 34% in 2014. Quinta do Lago has long been popular with British buyers. Properties range from furnished two bedroom apartments for around €350,000 to sumptuous mansions with terrace, pool, Jacuzzi, wine cellar, elevator, library and extensive grounds with fountain and barbecue pavilion (price on application).

According to Rightmove, buyers from France and Norway are also keen to be part of the Portuguese property market right now, while Diogo Gasper Ferreira, President of the Association of Portuguese Resorts is considering future demographic shifts in Portuguese property ownership. He comments,

“Approximately 15% of people in northern Europe with free wealth of more than €2 million have a second home in Southern Europe. But if you apply the same criteria to wealthy individuals in Eastern Europe it’s less than 05%.

“I think in future we’ll see Polish buyers here. It’s a big market of almost 40 million people and they’re becoming richer. I think we will see Russian buyers, too. Russia is a market of 140 million people, more than twice the size of the UK, and there are many Russians with the potential to buy property at €500,000 to €1.5 million.”

Ideal Homes Portugal’s Chris White agrees, but also highlights the potential for buyers from the UAE to embrace Portugal as their second home destination of choice, adding,

“It will be interesting to see the impact that the granting of visa-free access to Emiratis visiting the Schengen zone has on property ownership in southern Europe and particularly in Portugal. This is a hugely wealthy market and the Algarve has some fine villas just waiting for the right owners to come along.”

When it comes to buyers’ age, Rightmove’s data has shown that the average buyer is between 55 and 64 years old. The company has also revealed that island living on Madeira is buyers’ third location preference, after the Algarve and Lisbon, and that 57% of those looking to buy currently plan to fund their purchase with cash.

For further details call Ideal Homes Portugal on 0800 133 7644 or +351 289 513 434, email enquiries@idealhomesportugal.com or visit www.idealhomesportugal.com.