Tax Alert: Stamp Duty and Property tax exemptions for young people in Portugal

Yes, you read right. As of 1 August 2024, Portugal provides an exemption of Real Estate Transfer Tax (the Imposto Municipal sobre as Transmissões Onerosas de Imóveis - IMT) and Stamp Duty (Imposto do Selo) over property acquisitions whenever the buyer is up to 35 years of age and is making the first acquisition of a permanent dwelling.

We prepared a brief roadmap to give you the full picture of what is at stake but, in case you already know the bits and pieces of the IMT and Stamp Duty, you can go directly to point 4.

1. What is the IMT?

Roughly speaking, the IMT is a municipal tax applied on property transfers. The tax rates vary depending on the type of property (e.g. whether it is residential, commercial, or rural property, whether it will be used as the primary home of the purchaser or not).

In the specific case of residential properties used as the permanent dwelling (i.e. tax address) of the purchaser, the rates are progressive and can go up to 7.5% for transactions above EUR 1,102,920.

The IMT exemptions were very limited (e.g. specific projects of urban rehabilitation, with strict requirements) and sometimes provided through isolated measures implemented by each Municipality – a good example being the IMT exemption implemented by the Municipality of Funchal, in Madeira.

2. How long has the IMT been in place?

The IMT has been in place since 2004, when it replaced the SISA tax – which also entailed a tax burden over property buyers.

For several years, the IMT and its predecessor have been branded as the “most stupid tax in the World” – an expression originally used by no other than the current General Secretary of the UN and former Portuguese Prime Minister, António Guterres.

There are plenty of reasons for this unflattering title and they have been addressed in detail by scholars and practitioners: it lacks proportionality and equality, it deters investment and home ownership and it is considered a part of over-taxation of property ownership (remember that Portugal also has the IMI, which is an annual tax).

This apparent lack of fairness has led to several political forces advocating for the full termination of IMT but, regardless of the relevant technical discussion, this intention always seen reluctantly by the municipalities, which for many years has seen in the IMT a relevant source of revenue.

3. Before delving into the details: what does Stamp Duty have to do with all of this?

It’s simple. On top of IMT, property buyers must also pay Stamp Duty at a rate of 0.8%, typically over the purchase price (or the tax value, but in most cases this is lower). Although it’s considerably below the IMT burden, it is still a cost that cannot be neglected.

4. Let’s go to the point: you are 35 or under and you want to buy a property in Portugal. Will you benefit from any of this?

We do not like the expression, but it fits perfectly: it depends.

The conditions are:

• this must be your first acquisition of a permanent dwelling – the property will have to become your tax address;
• you must not have owned any residential property at the time of the transaction or at any time in the previous 3 years; and
• you must not be deemed as a dependent for personal income tax purposes.

In case you comply with the above, the tax breaks are:

• transactions up to EUR 316,772 – full exemption from Real Estate Transfer Tax and Stamp Duty;
• transactions of more than EUR 316,772 and up to EUR 633,453 – partial exemption for both the taxes, with only the amount exceeding EUR 316,772 being taxed; and
• transactions of more than EUR 633,453 – there is no exemption, i.e., standard IMT and Stamp Duty rates will apply.

The purchasers will not be allowed to use the property for any other purpose (e.g. short or long-term rental) for 6 years from the date of acquisition. Nevertheless, exceptions will be considered in specific circumstances, such as a change of place of employment of more than 100 km or a change in the household, but the property use must always remain residential.

What about if there are two buyers and only one of them is 35 years of age or below? In such a case, the exemption will apply only in the proportion of ownership of the eligible buyer.