A Complete Guide to Buying Property in Portugal in 2013

buying property in portugal

The Purchaser’s solicitor will prepare a Contract of Purchase and Sale (the Promissory Contract) of the property and when this is signed by the purchaser he will have to pay over the agreed deposit and will then be legally bound to purchase the property.

Before Contract

Prior to paying over any money or signing any Promissory Contract, a purchaser should instruct us to undertake thorough pre-contract inquiries.  If money has changed hands, it will be very difficult to retrieve it if the Title is not subsequently in order.  A Vendor should have a complete set of Title Deeds, which show that the Vendor is the person legally entitled to sell and that the property being sold is the property the Purchaser has agreed to buy.  The property should have a valid Habitation Licence, which is similar to planning permission and confirms that the local authority have approved the construction of the property.

Land Registry

A search will give details of:

  • Ownership
  • Title
  • Description of property
  • Mortgages
  • Charges
  • Third party interests

Caderneta Predial

Every property has to have a Caderneta Predial which is a taxation identification and sets, among other things, the rateable valuation.  This valuation is important for the determination of IMT Tax, Notarial and Registration fees.

Habitation Licence

We need to check the records at the local authority (the Camara).  All residential properties constructed since 1951 need a Habitation Licence, which confirms that the Camara has inspected the property and that it complies with planning permission and building regulations.

Other enquiries

The above checks and enquiries we must always undertake. There are other enquiries, which we strongly recommend should be carried out except in exceptional circumstances.  For example, examining the local development plan to ensure that there are no infrastructure developments planned for the area.  We would strongly recommend that the property be professionally surveyed.  This does all add to the expense, but we cannot stress enough the problems that may be faced if these inquiries are not made.  This is not the United Kingdom and things must be checked very carefully.

Assuming that all enquiries and searches are in order, we will then advise that you may proceed to enter into a contract to purchase.

1. BETWEEN EXCHANGE OF CONTRACT AND COMPLETION

There will usually be a period between Contract and completion.  This will vary from purchase to purchase and depends on the particular circumstances of the parties e.g., Vendor wishes to retain use of property for a further period or Vendor has to get paperwork in order prior to completion.  Completion of a property purchase takes place at the offices of the local Notary.  The Notary records the transaction, which is signed in his presence from copies of the document relating to the property.  This is often referred to as the Escritura.  The purchaser will now take possession of the property.

2. REGISTRATION

After the transaction has been entered into the Notary’s records, we uplift a copy of the “Deed” and register the transaction at the Land Registry.  This formally notes the purchaser’s legal ownership of the property.  Registration itself can take several months.

3. COSTS AND CHARGES

Accordingly you will see that there is expense involved at the initial stage even before you sign the contract.  You then may decide not to proceed with the purchase because a problem comes to light.  It would however be money well spent.  To undertake the basic searches outlined above, which will involve us in spending money on your behalf, we would need to be put in funds.  If you wish us to arrange either or both of the surveys recommended, we will get a quotation for you before going ahead.

If the purchase does proceed, we will allow any professional fees paid to us against the figure quoted for the entire transaction

We can, in addition to the searches, ensure that all of the following are in order and up to date. We can attend to these on your behalf:

  • Planal (Protal): Developers service and infrastructure charges (Quinta do Lago).
  • Property tax
  • Condominium service charges
  • EDP (electricity supply).
  • Telephone
  • Camara (local authority).  The search at the Camara referred to earlier does not confirm that the property as it now stands comprises that covered by the Habitation Certificate as there may have been additions since construction eg. swimming pool.  This may require the services of a surveyor whose fees you will have to pay.

We will ensure that all outgoings and charges are paid up to date on completion.

3. 1 IMT

This is the Portuguese Purchase Tax and will need to be paid prior to completion.  The amount payable varies with the value of the property and we will always advise you of this figure before you incur any expenditure.

3.2 NOTARIAL AND REGISTRATION FEES

These will have to be paid by you on completion and as a rule will be approximately 2.5% of the purchase price.

3.3 IVA

This is the equivalent of VAT and is charged at 23% on legal fees.

3.4 OUTLAY

There will also be other outlay on your behalf to cover our travel and other expenses.

4. POWER OF ATTORNEY

In order to conduct the transaction on your behalf we recommend that you complete a Power of Attorney in our favour.  The alternative is for you to attend at our offices and at the Notary to execute each document, which is usually impractical. We will provide you with a suggested format, which you will need to have notarised for return to us.

5. WILLS 

We always recommend to purchasers of property that they immediately make a Will in Portugal dealing with the assets in Portugal.  If this is not done, probate in the country of residence has to be taken out and then transferred and translated into Portuguese.  Making a Will in Portugal will reduce the expense and avoid time delays.  The Portuguese Will is in addition to and not in place of your existing Will.

6. OFF-SHORE

In circumstances where the property is already owned by an off-shore company, we would certify the title of the company to the property in the usual way.  We will then prepare an agreement to transfer either the shares or the beneficial ownership in the company to the purchaser.  We will conduct the usual extensive inquiries into the company’s affairs prior to proceeding.

On completion the ownership of the property will not have changed, only that of the company.

OFFSHORE v PRIVATE OWNERSHIP

The reasoning behind offshore company purchases and sales is to avoid the IMT Tax, Notarial and Registration fees and perhaps Inheritance Tax on subsequent sales and purchases.  IMT Tax is paid by the purchaser and is based on the purchase price.  With off-shore company held properties, the property is not sold, it is the shares in the company which are actually transferred.  On a subsequent disposal an off-shore held asset will also be correspondingly more attractive to a purchaser.

There is also an advantage in the avoidance of Portuguese Inheritance Tax on the death of the beneficial owner.  This tax is charged even when the beneficiary is a surviving husband or wife.  The rate of tax is on a sliding scale and depends on the value of the property and on the relationship of the beneficiary to the deceased.  There is a further advantage, as Portugal does not have the concept of joint tenants where the survivor automatically assumes ownership and on the death of one of the owners a transfer of his/her share in the property has to be effected.

At the present time the disadvantage to off-shore ownership is the annual costs of running an off-shore vehicle of £400 to £1,000.  The decision must therefore be based on a cost/benefit analysis.

AFTER COMPLETION

If the registered owner of the property changes in the transaction, new contracts will have to be entered into with the utilities companies for electricity, telephone etc.  These involve personal attendance at the relevant provider’s offices and are invariably extremely time consuming.

We can attend to these transfers on your behalf for a reasonable charge.

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