The Stability Program for 2019-23 anticipates €31 million in additional tax revenues from the new maximum tax bracket for AIMI, applicable to Ratable Values (“VPT”) above €2 million. The Additional to Municipal Property Tax was first created in 2017 targeting luxury properties.
The “VPT” of your property is not directly related to construction costs or its market value (except for the soon-to-be-overhauled Location Coefficient). The Property Evaluation System (“Valor Patrimonial Tributário or VPT”) is a mathematical formula comprised of six factors, working as follows:
The “AT” (Tax Authority) has revealed plans to review the Location Coefficient (“CL”) of immovable properties by the end of August. The new localisation factor will be approved by the end of the year, coming into effect in January 2020. Finanças targets updates to the Ratable Value of real estate (“VPT”) at 85% of average property prices in each location.
The Stability Program for 2019-23 anticipates €31 million in additional tax revenues from the new maximum tax bracket for AIMI, applicable to Ratable Values (“VPT”) above €2 million. The Additional to Municipal Property Tax was first created in 2017 targeting luxury properties. Beyond the standard “IMI” assessment, Companies are charged AIMI at a rate of 0.4% on the sum of the Rateable Values of these properties. Residences held by entities in tax havens pay 7.5%. In the case of individual ownership, an AIMI rate of 0.7% is applied on “VPT” totals above €600,000 (or double this amount for married and cohabiting couples who opt for joint “IRS” declarations). When the “VPT” values exceed €1 million, the tax rate increases to 1%. The new bracket, created in the recent State Budget to be applied for the first time in 2019, foresees an AIMI tax rate of 1.5%, applicable to “VPT” amounts above €2 million.
More than 90% of the taxpayers requesting a reassessment of their property based on an outdated “VPT” (Tax Asset Value) achieved a reduction in the “IMI” due (Municipal Property Tax). Properties were overvalued by more than €447 million. Updating the VPT (on which the tax rate applies) does not happen automatically. Legislation permits owners to call for a reappraisal three years after the previous one. This request – which is free of charge – can be made directly at the local tax office or via the Finanças Portal.
In 2019, the value per square metre for real estate rose from €603 to €615 per m², an amount that had not changed since 2010. This criterion is key in determining a property’s Rateable Value (“VPT”) and consequently the value of “IMI”. The amount due is fixed by factors such as location, condition, quality, size and age of the property. These coefficients are updated every three years at which time a revaluation of the property can be requested. The final “IMI” due is determined by the tax rate established by each Municipality between 0.3% to 0.45% for urban buildings and 0.8% for rustic land.
Established in 2017, “AIMI” is a supplementary property tax assessed on higher valued properties, based on the sum of all taxable “urban” real estate (“VPT”). This incremental levy is sometimes euphemistically referred to as a Portuguese Wealth Tax. Urban properties classified as “commercial, industrial or service” and “other” are exempt.
In 2019, AIMI rates are as follows:
Companies (non-residential use by owners/directors; otherwise same as Individuals):
0.4% for total of rateable urban “VPT”s;
Individuals (for couples, double exempt value):
0.7% When the total “VPT” value of all properties is between €600,000 and €1,000,000;
1% For “VPT” real estate totals between €1,000,000 and €2,000,000;
1.5% For “VPT” total exceeding two million euros (new in 2019).
Assessment of the Additional to IMI is calculated in June referring to real estate holdings on 01 January of each year. Payment is due in September.
As a relatively new tax, it is not surprising that many have been caught unaware of their liability to pay AIMI and, more importantly, how they can avoid the disturbing consequences. The additional assessment to IMI (Adicional Imposto Municipal Imobiliário) is sending shock waves to individuals and company owners who unwittingly find themselves under the weight of this added fiscal obligation. Continue reading
Many property owners who acquired their homes in Portugal in years gone by face a common dilemma: they bought at a time when real estate was dirt cheap. These houses were often primitive and in poor condition, requiring substantial renovations. In those days, it was common practice to do the work and worry about the formalities later: no building permits, no formal plans, no invoices issued or kept. In addition, the Rateable Value (“VPT”) remained low, sometimes too low to tax!
Today, the situation has inverted. Valuations and tax appraisals have skyrocketed. Unauthorised alternations require planning permission prior to sale. Low deed prices and low Rateable Values can mean a whopping Capital Gains tax assessment upon sale.
If you are resident in Portugal, there are two conventional assessment options for Capital Gains:
1) one half of the capital gain can be excluded. The other 50% of the adjusted net profit is added to overall income for the fiscal year and taxed at marginal rates. Properties purchased prior to 1989 are exempt for Capital Gains Tax.
2) Alternatively, the gain may be rolled over if another principal residence of equal or greater value is purchased between 24 months prior and 3 years after the sale. For newly acquired properties of lesser value, the gain is calculated on a pro-rata basis. The rollover can be anywhere in the EU, not just in Portugal, as long as it becomes your principal residence.
These options are not available to non-residents whose CGT is based on the full gain.
In some cases, the problem can be mitigated or completely resolved by “killing two birds with one stone”. First, have architectural plans drawn up and building permits issued for any unrecorded improvements. Then, upon “completion” and inspection, the old “matriz” (tax registration) can be struck off and a new one assigned, along with a revision of the property’s Rateable Value. This new “matriz” will serve as the base when you finally sell your property, substantially reducing your CGT liability as well as sorting out the bureaucratic “skeletons in the closet” that can make your property difficult to sell.
Example: The Smiths bought and renovated an old farmhouse in the mid-1980’s with little or no paperwork to show for the improvements that they made. While today’s selling price is €500,000, most of the proceeds of the sale will be seen as a Capital Gain.
To achieve a much-needed update in bureaucratic formalities and a significant “VPT” uplift, they apply for building permits and subsequent inspection. Their old “matriz”, with an original “VPT” of just €50,000, is struck off and a new registration approved at over €375,000, leaving them with a far more manageable CGT bill to settle.
Capital Gains Tax on property can be a complicated matter with many permutations. The basic guideline is quite simple: Plan Ahead! Leaving your queries to the last minute makes the worst case scenario an almost inevitable outcome. By anticipating possible events, you can take timely action to minimise your future assessment.
Individuals who reside in tax havens and own residential property in Portugal are free from paying the 7.5% surcharge applied to the new Additional Municipal Property Tax (“AIMI”). Only companies domiciled in tax havens – offshore companies – are subject to the aggravated rate on the full ratable value (“VPT”) of residential properties. “AIMI” replaces Stamp Tax, which provided for the application of a tax rate of 1% on each property with a “VPT” greater than one million euros.