Sunday Business Post 05.06

Sunday Business Post
May 2006
A home in the Algarve can be yours, but make sure you get sound legal advice before jumping in.

As with any overseas market, it is essential that you get sound legal and financial advice when buying in Portugal, A folly qualified solicitor will charge conveyancing fees of between 1 and 3 per cent of the value of the property; the total costs involved in the overall transaction will usually come to about 15 per cent of the purchase price, slightly less for country side property.

These costs include solicitor and notary fees, stamp duty, and transfer tax, previously known as SISA but now called IMT.

There is a clear set of rules to follow when buying in Portugal, To start with, you will need to check the property's classification in the land registry, where it will be listed as either rural land, urban land or mixed land. For rural land you will need to check planning requirements and look for planning permission. Urban land constitutes a house or part of a building that already exists, or land upon which such a property can be built. Mixed land, as the name suggests, comprises both urban and rustic parts.

Should you be purchasing a standing property, your next task will be to check out the legal title, which should be registered in both the land registry and in the tax department in the seller's name. This is where you will find out whether there are any outstanding loans against the property, so it is imperative that it is checked.

It is also necessary to obtain documents from the two organisations - the land registry issues what is known as a Cerlidao de Registo Predial which is valid for six months, while the tax department will give you a Cadcrnela Predial, which is valid for a year, or a
Certidao M.uricial, which is valid for six months. These will usually take between five and 20 days to arrange. If your property was built after 1951, you will also need a Licenca de Utilizacao, which is available from the town hall.

Once you have obtained these documents, you will need to sign the promissory contract, in which the parties to the Transaction promise to execute the final contract of purchase and sale. As well as providing the above documents, the buyer and vendor will both need a tax card, supplied by the tax department, and ID cards or passports.

Both the purchaser and the vendor, or their attorneys, must sign the promissory contract before a public notary. At this point, you will pay a deposit of between 5 and 15 per cent of the purchase price- it usually takes between one week and four weeks to negotiate the terms of the promissory contract, execute it and pay the deposit to the vendor.

Before completing the sale, you will need to pay a purchase tax, which is calculated as a percentage of the property's value. This works out at 5 per cent for rustic land and 6.5 per cent for building land. Residential property is taxed on a sliding scale, with homes below
€83,500 incurring no purchase tax, while homes between €260,900 and €521,700 will be charged at 0.5 per cent.

Council tax is also charged at between 0.2 and 0.8 per cent of the property or land value. Property that will be used as a permanent residence by its owners is exempt from this tax for between four and six years, depending on the value, after which it is charged at 0.5 percent.

To complete the transfer of the properly, you will sign a deed of conveyance before a public notary, who will verify the identity of both parties and the validity of the deal, both legally and from a tax point of view. To do this, you will need all of the documents listed above, as well as a receipt from the tax department showing that the TMT has been paid.

The purchaser will also need to pay notarial fees to the public notary; these are calculated on the property's value, and average around €400- Stamp duty is charged at 0.8 per cent of the property's value. Extra notarial and registration fees arc charged if there is a mortgage or other loan on the property and. in this case, stamp duty writ be at 0.4 per cent

It lakes somewhere between two weeks and two months to sign the deed of purchase and sale and pay the outstanding balance to the vendor.

Once you have bought your properly, you wilt need to register it with the land registry. This will cost about €200, although the sum depends on the property's value. The process takes about a month to complete.

Non-resident income tax is 15 per cent, with capital gains at 25 per cent. The existence of a double taxation agreement means you won't be taxed twice, but it will be necessary to pay any balance due to bring the level up to whichever rate is applicable to you in Ireland. You will not, however, be given any allowance for extra payments in Portugal.

Where properly is rented with a contract, this must be registered with the tax authorities, and withholding tax of 15 per cent should be deducted from rental income.

For those considering a renovation project, a reduced Vat rate of 5 per cent applies to the restoration, maintenance or improvement of residential buildings. Note that the reduced rate does not include materials, except when the value is under 20 per cent of the total service value. Otherwise, Vat rates are 19 per cent - although some areas, such as restaurant and bar services, are covered under an intermediary rate of 12 per cent.

It is important to set up a will in Portugal, as the children of Portuguese nationals have a reserved entitlement to a proportion of a deceased parents estate, over the rights of a surviving spouse- Foreign nationals are allowed to dispose of Portuguese property in line with the law of their own country, which is not normally a problem, but it is advisable to have this outlined in a Portuguese will.

Inheritance tax was abolished in 2004 for inheritances or lifetime gifts in a direct line or from spouses, otherwise it still applies to any assets in Portugal. The tax is payable by the recipient, and depends upon how closely related he or she is to the deceased or the donor.
The rates currently range between 7 and 50 per cent.

If you want to ensure that it is possible lo make all deductions from your income, you will need a local fiscal representative, normally an accountant, to make returns on your behalf. This is a legal requirement for homeowners in Portugal.

Alternatively, you could speak to a company such as Mazars, which will ensure that all your transactions are tax-friendly in both jurisdictions.

It is advisable that you speak to all such advisors, legal, fiscal and mortgage providers prior to any purchase, so that the deal is set up properly both from a tax and financial point of view at the very start.

Changes can be difficult and expensive to carry out once the purchase procedure has begun. Some Irish legal practices have associate offices in Portugal and other countries. Dublin solicitor Tom McGrath, for example. works with the Anglo-Portuguese firm Neville De Rougemont.