Buying a house in Portugal is definitely an exciting idea, but it will also likely fill you with anxiety and uncertainty.
You are dealing with a different country and a different set of rules, as well as an unfamiliar property market and regulation procedures.
As a foreign buyer, it’s reasonable to wonder whether you are doing everything possible to safeguard yourself from mistakes and to ensure your rights as a customer are protected.
That’s why in this guide we will speak in detail about the process of home buying in Portugal. The aim is to make sure you know exactly what to expect and what should be done at each stage to avoid possible pitfalls.
First things first, the different people you will have to deal with when buying a property in Portugal, and how to make sure they act to protect your interests.
Inside This Guide:
Working with a property agent in Portugal
In Portugal, property agents must obtain a government licence to operate legally. Check that your agents have been trained and certified by the Instituto da Construcāo e do Imobiliario (INCI), and display their license (AMI) number.
Certified agents display their AMI number on all types of published material, whether it’s their webpage, leaflets or brochures, business cards, etc.
To check that the number is valid, visit the INCI’s website. Click the “Checking Out an AMI Number” link on the website and enter the numbers of your prospective agents. Press “Pesquisar” and if you can see your agents in the search results, it means they are properly licensed.
Legal representation: a notary, a solicitador and an advogado
The notary in Portugal represents the state, rather than either party. This means the notary doesn’t act in your interests; what they do is make sure a good title is attained, all the required paperwork is filed, and taxes are paid.
For documents to be legally binding, they need to be signed in the presence of a state authorised notary. When you sign the initial promissory contract (contrato de promessa de compra e venda), it takes place in the presence of a notary.
A notary must also be involved at the point of completion when the final contract (escritura de compra e venda) is ready to be signed.
If you want legal representation for yourself personally, you will need a solicitador or an advogado. A solicitador is more like a conveyancing specialist in the UK, while an advogado is the equivalent of a qualified UK lawyer.
You may have to pay more if you want a proper advogado to represent your interests.
Whoever you choose, make sure they are not the ones recommended by your estate agent. Remember, estate agents act for sellers, and you really don’t want to be represented by the same lawyer who acts for the seller of your chosen property.
A list of English speaking Portuguese lawyers can be found at gov.uk.
An independent lawyer can represent your interests specifically, and can also be granted power of attorney. This means that you don’t have to be present in the country at every stage of the process.
Property buying process
So, you have found the home of your dreams in the nicest location that ticks every box and promises a fabulous life. However, don’t relax just yet, there is a whole journey ahead – purchasing your dream home in Portugal.
The first step is to reserve the property you have chosen.
Reservation is not a mandatory step in Portugal. However, if for some reason it is impossible to sign the promissory contract of sale and purchase immediately, reserving the property gives both parties a degree of security.
Normally the reservation stage involves the property being taken off the market and sets a time limit within which the promissory contract must be signed.
The Promissory Contract of Sale and Purchase
A Promissory Contract (Contrato de Promessa de Compra e Venda) legally binds both the seller and the buyer to conclude the main sales contract within a period of time. It is a way to secure your purchase until the main sales contract is concluded.
The Promissory Contract can be recorded in the land registry. In this case the promissory contract also applies to third parties and prevents a bona fide purchase. The registration is valid for six months and can be extended for another six months.
When you sign a promissory contract, you will be required to pay a negotiable deposit (10% to 30% is common practice). The contract contains all the conditions of sale, which could include completion of any building work and the connection of utilities.
In case of a breach of contract, this payment can be used as a penalty. If the seller breaches the contract, they have to return this deposit in double. If the buyer breaches the contract, the seller keeps it.
Due diligence (what your lawyer should do)
It might take you about four weeks to complete the sale. This isn’t too long, and there are a few things that need to be done before the completion date.
You need to obtain a Portuguese tax code (Numero Fiscal de Contribuinte). You can either ask your lawyer to help or apply for a tax code yourself. It’s simple enough, costs about €5, and the tax code will be issued immediately.
All you need to do is visit your local tax office (Repartição de Finanças) and present proof of identity (your residency card, identity card or passport) and an address in Portugal to which the tax office can send your tax bills and other communications.
If you do not yet have a Portuguese address, you will normally be able to use that of a lawyer, estate agent, or a friend. When you change the address, don’t forget to inform your new tax office or Taxpayers Advice Office (Serviço de Apoio ao Contribuinte). Most towns have a tax office.
Apart from that, your lawyer needs to complete all the legal checks on the property (including verifying it is free of debt) and obtain copies of some official documents:
- Licence of Use (Licenca de Utilizacao) – this is to prove that the property has a habitation license. Without a habitation licence it is illegal to occupy a property. Moreover, the value of the property would be substantially diminished if it turns out that it is impossible to obtain such a license and you cannot sell legally the property to anyone.
- Property Registration Document (Certidao de Teor) – this shows whether there are outstanding mortgages on the property and if it is registered in the owner’s name.
- Property Tax Document (Caderneta Perdial), which funnily enough, doesn’t have anything to do with tax paid on the property in question. What it does is outline the size of the property, its location, and boundaries. Any unregistered buildings or extensions will show up when comparing these documents to the actual property.
- IMI statement to confirm that the municipal tax payments and bills are up to date.
- IMT statement to confirm that the property transfer tax is paid over to the tax authorities on the sale.
- Fiche Tecnica de Habitacāo – this document is required by law for any property built or altered after 1 January 2003. It contains information about the property, including the builder’s details, construction materials used, and technical and functional features.
Once all this paperwork is in order, you should be ready to arrange completion.
Public Deed of Sale and Purchase
The formal record of the purchase – the public deed of sale and purchase – takes place at the notary office. The transmission of ownership is then registered with the local property registrar by providing them with a certified copy of the deed.
Costs and fees
Property transactions in Portugal are not cheap: the deposit is a minimum of 10 % of the sale price, and in addition, you should budget a further 10% for all the other buying costs, such as fees, lawyers and notaries.
A purchase tax (IMT) is payable before a property purchase is complete, with rates ranging between 0% and 8%. If the property is a new development, you will instead pay IVA (VAT) of 23% on the net price, though this will be included in the purchase price.
The Portuguese equivalent of the UK’s council tax (IMI) is 0.3 – 0.8% a year. If the property is a new development and is occupied as a main residence, you may be entitled to an exemption from IMI for up to six years.
Legal fees will be 1-2% and notary fees, along with registration fees, will also be 1-2%, depending upon whether there is a mortgage. Mortgage costs could be as much as 4%.
When transferring money to pay for your property, research all the available options to make sure you get the best deal from your broker or your bank.
You might find useful:
- UK Pensions And Tax In Portugal – what pension options you have and how to pay no income tax on your pension when you retire to Portugal;
- Best Places To Live In Portugal – a detailed overview of Portugal’s most popular locations for expats;
- Visit our homepage for a comprehensive range of Retirement Abroad guides.