Despite the financial burden of a mortgage, the truth is that all the other costs associated with buying a home make the total cost of purchasing the property much higher. The first step, then, is to find financing that is tailored to your needs and payment capabilities.
What are the taxes involved in buying a property?
After choosing your ideal home and getting your mortgage approved, you need to take care of the paperwork: gather all the required documentation, sign the deed, and pay the taxes associated with buying a property.
There are three taxes that must be paid to the State: Municipal Property Tax (IMI), Municipal Tax on Onerous Property Transfers (IMT), and Stamp Duty (IS). Given their distinctive characteristics, below we will explain what they consist of and how to calculate them, so that you know exactly how much you will pay.
1. Municipal Property Tax (IMI)
IMI is a tax levied on the Taxable Property Value of the property and must be paid every year from the moment the consumer purchases the house in question.
Formula:
IMI = Taxable Value (VPT) x Applicable Rate
The rate to be applied is defined by each municipality in Portugal, but you should take into account the IMI calculation. This calculation is based on a table with intervals, which is present in the Municipal Property Tax Code
The rate to be applied is set by each municipality in Portugal, but should take into account the calculation of the IMI. This calculation is based on a table with intervals, which is included in the Municipal Property Tax Code (CIMI), with the interval for urban buildings (houses for habitation and land for construction) varying between 0.3% and 0.45%.
All Portuguese citizens must pay this tax in May. To facilitate the payment of higher amounts, payment in installments is permitted, namely:
- If the IMI does not exceed €100, payment must be made in full;
- If the amount is between €100 and €500, the citizen may choose to pay in two installments, in May and November;
- If the amount exceeds €500, it is possible to pay the IMI in three monthly installments, in May, August, and November.
Is it possible to be exempt from IMI?
Yes, it is possible to be exempt from paying this tax in two different situations.
On the one hand, it is possible to obtain a temporary exemption. In the case of a property purchased for permanent residence, if the property value does not exceed €125,000 and if the household's taxable income is less than €153,300 for IRS purposes, then the family may be exempt from paying IMI for three years.
On the other hand, it is still possible to benefit from a lifetime exemption. To do so, the annual household income must not exceed €15,295, which represents 2.3 times the annual value of the Social Support Index of €475.
2. Municipal Tax on Onerous Transfers of Real Estate (IMT)
Another tax on the purchase of real estate is the IMT. This is charged whenever a house is purchased and is applied to the Taxable Asset Value or the value declared in the deed, whichever is higher.
In addition, the portion corresponding to the rate (which can be found in the IMT table available on the Finance Portal) must be subtracted.
Formula:
IMT = Deed Value or Taxable Asset Value (whichever is higher) x Rate to be applied – Portion to be deducted
This tax must be paid before the purchase of the property and its calculation takes into account four specific characteristics:
- Type of property: rural or urban;
- Location of the house: Mainland or Autonomous Regions;
- Purpose of the purchase: Permanent or Secondary Residence;
- Rate applied: which varies between 1% and 8%.
Are there any exemptions from IMT?
To be eligible for exemption from IMT, the house must be used solely as a permanent residence. In addition, its value must not exceed €92,407 on the mainland and €115,509 in the Autonomous Regions.
3. Stamp Duty (IS)
The last (but not least) tax on the purchase of real estate is Stamp Duty. In mortgage loans, Stamp Duty can be applied in two different situations that you should be aware of.
Stamp Duty on the purchase and sale of real estate
Firstly, there is the payment of Stamp Duty on the purchase and sale of real estate. As such, when the deed is signed, the buyer of the house must pay this tax to the Notary. In this specific case, Stamp Duty is 0.8%.
Formula:
IS = Deed value or Taxable Asset Value (whichever is higher) x 0.8%
Stamp duty on mortgage loans
Secondly, if a mortgage loan is granted, the consumer must pay stamp duty on the amount financed. This property tax will be paid when the loan amount is transferred to the bank account of the customer who is buying a new home.
In this specific case, there are two different rates, namely:
- For credit agreements with a payment term of more than five years, the Stamp Duty is 0.6%;
- If the payment term is less than five years, the rate is 0.5%.
Formula:
IS = Mortgage amount x 0.6%
Once you are aware of these legal requirements that you will have to comply with, you will be able to more easily understand the real cost of buying a home. Calculating the total cost of buying a home—including taxes, registration fees, mortgage, and other expenses—will help you make an informed and, undoubtedly, more accurate decision.
Source: comparaja