Portugal continues to make a raft of property-related policy changes. This comes off the back of housing crises.
The government has introduced new tax measures targeting property owners who convert residential homes into holiday rentals. This may affect investors, particularly those involved in the Golden Visa programme.
Understanding Portugal's property transfer tax (IMT)
The IMT, or Imposto Municipal sobre Transmissões, is a municipal tax. It's a one-off payment, but its impact can be long-lasting.
When you purchase a property in Portugal, you are required to pay IMT, the rate of which depends on the property's value and its intended use.
For residential urban properties, the IMT operates on a sliding scale:
0% for permanent residences up to €101,917
1% for non-permanent residences up to €101,917
2% for properties worth €101,917—139,412
Rates increase progressively, reaching 7.5% for properties above €1,102,920
Rural properties face a flat 5% rate, whilst commercial real estate is taxed at 6.5%, regardless of location.
New taxes for holiday let conversions
The Portuguese Tax Authority has clarified that property owners converting homes to holiday rentals within six years of purchase will face additional IMT charges.
Initially, residential property buyers benefit from lower IMT rates. However, if the property is repurposed for Local Accommodation (AL) activities within six years, this benefit expires.
Owners must then rectify their IMT settlement, paying the difference between the residential and commercial rates. This could mean a big increase, potentially jumping from 1% to 6.5%.
What the new taxes mean for Golden Visa holders
Portugal has revised its Golden Visa programme multiple times, especially in the past two years. Most notably, a new bill signed into law in late 2023 removed real estate as an option for getting the residency permit.
But the law didn’t apply retroactively, meaning current holders can maintain their properties. That’s why they should care about the new taxes, particularly if they own a second home or commercial properties in Portugal.
Current property taxes
For Golden Visa investors who secured property before the investment option's removal in late 2023, these are current taxes:
Holders pay the standard IMT rates upon purchase
Annual property tax (IMI) ranges from 0.3% to 0.45% for urban properties
Non-tax residents pay 28% flat rate on rental income
Impact on Golden Visa property owners
- Second homes
If you own a second home as your residential property:
If converted to holiday lets within six years, face higher IMT charges
May affect property's profitability calculations
- Commercial properties
Already taxed at 6.5% IMT, less affected by new measures
Still subject to annual IMI and potential capital gains upon sale
- Rural properties
5% IMT rate remains unchanged
Conversion to holiday lets may trigger reassessment
- Urban residential properties
Most affected by new measures if repurposed for AL
Could significantly increase tax liability if converted within six-year window