Many buyers and sellers are unaware of their obligations with regard to the costs of the process of buying and selling property in Portugal. This can lead to stress and tension between the parties and even influence the decision to buy or sell a property.
Whether you are a Buyer or a Seller, both parties have associated costs:
1. Negotiation and search
More often than not, buyers need to evaluate several factors, as is the case in real estate requiring refurbishment. Such works carried-out on real estate are often accompanied by bureaucratic processes and depend on the analysis of the need for licensing and the associated costs.
The same is true in the case of the purchase of a part of a building or property. The buyer will have to analyse the need for building work and the decisions of other owners in the complex in order to anticipate the costs of building work in the common areas of the building.
2. Promissory contract
A promissory contract is often concluded for the purchase and sale of the property. The buyer is asked for a down payment. This is an instalment towards the total amount negotiated.
This payment will have several legal consequences, and it is therefore advisable to have a lawyer involved in the drafting and negotiation of the contract, in order to avoid future disputes and other consequences.
3. IMT (municipal tax on asset transfers)
This tax is probably one of the most important items in the total expenditure to be taken into account, and it is the responsibility of the Buyer, since it is a tax on the acquisition of a property.
The IMT will be levied on the value stated in the contract or on the taxable value of the property, whichever is higher.
The IMT varies according to the acquisition value of the deed or property or the taxable value (it is considered higher), the rate to be applied (from 1 to 8%), its location and its purpose, and there may be cases in which it is exempt from the payment of this tax.
The taxable value of the property is assessed by the Tax Authority and appears in the land registry. It is also important to take into account that the IMT comprises different rates according to the purpose of the asset - permanent owner-occupied housing, secondary housing, rustic building or other urban buildings and other onerous acquisitions - as well as the possibility of exemption.
Only property with a value equal or inferior to 92.407 euros and where the property is destined as a permanent residence and property acquired for rehabilitation interventions can also benefit from exemption. In order to obtain this benefit, the purchaser must start the respective works within a maximum of three years from the date of acquisition of the building.
4. Stamp duty
The Stamp Duty comes together with the IMT and is levied on the purchase, so it is the Buyer's responsibility. This tax has a fixed rate of 0.8% on the value that appears in the contract or on the patrimonial tax value of the property, whichever is higher.
5. Drafting the Deeds
Typically, the cost of the Deed is the responsibility of the Buyer, as it is usual for the Buyer to decide the place, date and time of the Deed. If the Buyer needs bank financing, it is the Financial Institution itself that decides the place of the deed.
The cost of the deed usually varies depending on the type of notary (public or private) and whether there is bank financing or not.
6. Capital gains from the sale
As the name indicates, it focuses on the sale, i.e. the Seller. The State will tax 50% of the capital gain obtained on the transaction, and it is possible to deduct expenses for the calculation of this capital gain, as well as to benefit from exemptions if applicable.
7. Cancellation of the mortgage
Seller's responsibility, since the mortgage to be cancelled will be the Seller’s. This act has a cost of 50 euros in the Land Registry. If you pay the credit in advance, these costs may be added to it with your Financial Institution.
8. Real estate agency commission
Seller's responsibility, since it is the Seller who hired the real estate agency to mediate the sale of his property. The commission value is usually a percentage of the sale value and can vary between 2% and 6%, depending on the agency and the type of service chosen.
The buyer may be represented by a different real estate agency at no cost, as the commission received by the selling agency will be divided by both agencies.
9. Documentation of the process
Although the Buyer may have some one-off costs with the need to update some personal documentation, the Seller is, as a rule, required to have the process documentation complete and up-to-date. The documents that may be required for the process are:
- Permanent building certificate - 15 euros for each fraction (document valid for 6 months)
- Preference rights - EUR 15 per advertisement (advertisement valid for 6 months)
- 2nd way licence use - From 35 (increases depending on number of pages)
- 2nd via housing technical sheet - Starting from 35 euros (increases depending on number of pages)
- Energy certificate - from 120 euros (increases depending on the area of the property)
10. IMI (municipal property tax)
According to the IMI code, whoever owns the property on 31st December pays the IMI for that year. Therefore, from the moment of the act of purchase and sale, the Buyer (who will become the current Owner) will be responsible for IMI. However, to avoid the Buyer paying the IMI for the whole year when buying a property in the course of the year, we advise that it is agreed by both parties to mention in the promissory contract that the IMI for the year of the deal will be paid by both in proportion to the use of the property.
The amount of IMI varies from property to property, and depends on the rate to be applied in the county where the property is located and the Taxable Asset Value (IMI Rate = VPT x Council IMI Rate).
