The primary concern of most prospective property buyers is to know the total investment that their purchase will involve. It is not sufficient to just consider the property purchase price, as this is obviously not the only cost to bear. Lack of awareness of the total amount required can lead to disappointments or even the inability to comply with contractual terms, with undesired consequences.

A fairly comprehensive description of all the costs follows, but if you want a short-cut, you can use the "Costs Calculator" alongside to obtain a quick estimate of all the purchase related costs involved at the time of purchase.

INTRODUCTION TO THE TAXES ON PROPERTY

The taxation on transfer and ownership of property was the object of a major reform which came into effect at the end of 2003. The new rules apply as of 1 January 2004, which include the abolition of the old ‘SISA' purchase tax and the 'Contribuição Autárquica' (annual rates on property), to be replaced by the IMT (Imposto Municipal sobre as Transmissões Onerosas de Imóveis) at the time of sale, and an annual IMI tax (Imposto Municipal sobre Imóveis) on the property, respectively.

Taxable Asset Value (valor patrimonial tributável)

In order to create a fair and equitable base for the taxable value of the properties, a new re-evaluation procedure was implemented, which will gradually (until 1 December 2013) result in the re-evaluation of all the properties in the country and produce an updated ‘Taxable Asset Value' (valor patrimonial tributável) for each property. This value serves as the basis for the calculation of IMT, IMI, Stamp Duty, and also capital gains when a property is sold.

This re-evaluation aims to resolve the huge discrepancies existing between the values of old and new properties, which presented owners with an unfair taxation base. Some of these values were completely unrealistic in today's market.

Due to the long-term nature of the process of re-evaluation of all the properties in the country, a transitional system was implemented which ensures that any owner is not subject to a radical increase from one year to the next, but rather a gradual one which rises until the updated value is reached. The exception, however, is that any properties sold, donated or otherwise transferred to new ownership, is immediately subject to re-evaluation under the new system to arrive at the updated Taxable Asset Value. This means that for our purposes, we need only explain the actual updated situation, and not the transitory system.

WHAT ARE THE COSTS INVOLVED?

The costs at the time of purchase are the following:

• IMT - Municipal Transfer Tax (purchase tax);
• Title Transfer (Escritura) fees and Stamp Duty;
• Property Registration Fee;
• Lawyer's fee.

The ongoing or future costs involved are basically:

• IMI - Municipal Annual Rates on the property;
• Inheritance Tax.

We will now look at each of these costs individually, explaining their origin and their calculation for a particular property.

IMT - Municipal Tax on transfer of property ownership

The Municipal Tax on transfer of the rights to a property (IMT) is basically a purchase tax, payable by the purchaser when a property's rights change ownership. It also applies in some other transactions involving property, like property exchanges and the purchase of shares in companies which own property. As we are concerned primarily with straightforward property transactions, we will only cover the rules of IMT as they apply to property purchases. The rates are applicable to the 'Taxable Asset Value' or the purchase price, whichever is higher. As the purchase price is normally higher, we will only refer to this figure.

The rates applicable are the following:

• 1% to 6% for urban property for residential use (villas & apartments). The rate is calculated using a sliding scale which changes periodically, and the table below gives the current formula for calculating the IMT tax.

• 6.5% for urban properties not destined for residential use such as office spaces and other commercial property.
• 5% for rural (rustic) property.
• 6.5% for urban land plot for construction.
• 8% for any property purchased by residents of the territories listed as 'Tax Havens' or Reduced Tax Domiciles by the Ministry of Finance..

Payment of the IMT tax is due prior to the act of change of possession of the property, usually the Escritura, and the proof of payment must be presented to the Notary before the Escritura can be celebrated.

Title Transfer (Escritura) Fees and Stamp Duty

These are the fees payable at the Public Notary for drawing up and witnessing the signing of the Escritura (Title Transfer), and are due on the date of the signing. The total fee is made up of two parts, namely the actual Notary fee, and a Stamp Duty on the transaction. If you are purchasing the property with a mortgage, the mortgage contract with the Bank is also formalized before the Notary and another fee is payable. There are also some small extra costs related to the number of copies of the document you request, etc.

• The Notary Fee itself is made up of a base fee depending on the property value, a supplement for each property transacted and the cost of one official copy (or certificate) of the Escritura. All these values are subject to IVA (VAT). The list below gives the total of these three components, including IVA, for the respective price ranges:

Purchase Price	Notary Fee
Up to €25,000.00	€177.92
> €25,000 to €125,000	€194.82
> €125,000 to €200,000	€211.74
Greater than €200,000.00	€267.55

• Stamp Duty on purchase: 0.8% of purchase price.
• Extras usually do not exceed €100.
• Mortgages, if applicable, are normally contracted at the same time as the purchase completion (Escritura) and imply a second Notarial Act with its own costs. Therefore, if the property is purchased with bank finance (mortgage), you need to add two further costs to the list, namely the Notary Fee and the Stamp Duty on the loan. The Notary fee is related to the amount of the mortgage and is therefore similar, but slightly lower, than the list provided above. The Stamp Duty is calculated at a rate of 0.6% of the mortgage amount. For the purposes of initial costs estimates, we do not go too deeply into these calculations as the loan amounts can and do vary depending on each buyer's requirements, but we do point them out for information purposes.

Property Registration Fee

The final step in the procedure is to register the purchase with the Property Registry Office (Conservatória do Registo Predial) of the area in which the property is located, and at the Tax Office (Repartição de Finanças).

The registration with the tax office will serve to establish your annual property rates/taxes, which are based on the property's 'Taxable Value' (see section below).

The costs are as follows:

• Registration of purchase is a fixed value of €250.
• Registration of mortgage is a fixed value of €250 (only if you are buying with a mortgage).
• Extras usually do not exceed €100.

Lawyer's Fee

These fees vary according to the value and complexity of the transaction. While the actual amount will depend on the lawyer chosen and the buyer's direct negotiation, experience has shown that the figure of 1% of the purchase price is a good benchmark for initial calculation purposes. The fees are normally payable in two parts, one at the beginning of the transaction, and the remainder upon completion. The lawyer can also handle connection of utilities, etc. when the transaction is complete.

IMI - Municipal Annual Rates on the property

The IMI is an annual tax on a property, owed by whoever owns the property on the 31 December of each year. For this purpose, the owner is considered to be the person/persons/entity recorded as such in the Property Matrix, or whoever is in legal possession of the property at that time.

The IMI rates, applied to the Taxable Asset Value of the property, are as follows:

• 0.8% for rural properties;
• 0.2 to 0.5% for urban properties (villas, apartments, offices and commercial spaces) when the Taxable Asset Value has been updated according to the new rules;
• 0.4 to 0.8% for urban properties which have not yet been re-evaluated in accordance with the new rules;
• 1% for any property owned by residents of the territories listed as 'Tax Havens' or Reduced Tax Domiciles by the Ministry of Finance. This rate increases to 2% if the property is left empty for periods longer than a year.

Where a spread exists, the actual rate is determined annually by the Municipality of the area in which the property is situated, and may exceed the limits under special circumstances.

The IMI calculation is based on the values recorded in the Property Matrix on 31 December of each year, and is due at the end of April of the following year. If the amount exceeds €250 it may be paid in two instalments, the first being due at the end of April, and the second at the end of September, of the year following that for which the tax applies.

When an urban property is used as a permanent and personal residence, some exemptions apply. The number of years’ exemption depends on the Taxable Asset Value (TAV) as follows:

Taxable Asset Value	Years of Exemption
Up to €150,000	6 years
> €150,000 to €225,000	3 years
Greater than €225,000	no exemption

Inheritance Tax

The changes in the tax laws applicable to property, in effect since 1 January 2004, have also changed the inheritance and gift tax situations, especially when said inheritance or gift is between immediate family members. In summary:

• An inheritance or gift between husband and wife, and between parents, children, grandparents, or other ascending or descending relatives, is exempt of tax;
• If the transfer of assets by inheritance or gift is not between spouses, or ascendant or descendant relatives, the transfer is subject to stamp duty.