Portuguese Vs. Spanish Real Estate Property, taxes etc.

Property and income tax comparisons between Portugal Vs. Spain lower down page but, just to mention, if our quinta / villa property were just a few meters north (across the river / border in Spain), it would cost the owners up to 43,750 Euros a year in wealth (assets) tax alone; here in Portugal there is no wealth tax.

Living on the border, we literally enjoy the best of both countries. For example, we consider the healthcare, fish, restaurant food, clothes shopping, recreational facilities, cured ham and dairy products to be far better in Spain. Chicken, fresh vegetables, bottled water, beef, fruit, video games (because the Portuguese versions also have English, the Spanish versions do not) preschools and soft drinks much better in Portugal. We sometimes buy wine in Portugal, sometimes Spain, depending on what offers there are. Many people here in Portugal buy petrol / diesel for their cars in Spain where it is cheaper. The garage that services our cars is 5 minutes into Spain; it is the nearest official Peugeot service centre to us and does not matter it is in another country from where we bought our cars.

When we bought our home we had researched between France, Spain and Portugal for many things. We wanted to find as crime free an area for the sake of our children as we could. We wanted to avoid any land title and development problems. We wanted to pay as little for goods, services, food items and tax as possible. We wanted peace and quiet but not at the expense of having immediate access to a wide range of facilities. We looked at the prospects of what global warming would mean, not so much for us but for our children; this for example is why we dismissed the Alentejo area of Portugal just south of Lisbon, because of the predictions for a few years time. We looked at links to the UK, where we are from.

One of the things that put us off Spain was, at the time, the number of cases on TV about foreigners who had bought large properties and land plots in Spain only to have nearly half their land taken away for low cost housing. OK, the Spanish Land Grab Law (LRAU) only seems to apply to the region of Valencia, but in other areas of Spain villas have been demolished years after they were built with building permits because the local government cancelled the permit retrospectively! British TV (ITV) has screened instances of this where even though the villa owners were appealing the local ruling in the Spanish high court in Madrid, the local authority went ahead and demolished their home anyway! The reason is that many Spanish building permits had been corruptly issued for "rustic" category land, which they should not have been; you need "Urbano" land title for development / building. In Portugal such things are tightly regulated and no-one can get a building permit for rustic land; they have to change the land type (if it is possible) first. In Spain it is buyer beware; be sure your land title is "Urbano". In Portugal you can get a building permit for agricultural title land (the plot on which you build though has first to be upgraded to "Urbano") if you own over 5000 sqm of agricultural land or your land is in a designated development zone; again, in Portugal, your land title for the building itself must be Urbano.

On the other side of the coin when Spain does zone an area for development they often have little regard at city hall for what is adjacent to where you can build. Here in Portugal land and developments / buildings are carefully regulated for a number of reasons including environmental and communal. For example, we have some land available to legally build a house but it has been made clear to us that the maximum number of storeys is two (including the roof section which can contain accommodation) and that any house must be a good distance from our nearest neighbour’s property so as not to steal light from their windows. Compare this with Salvaterra just across the border in Spain where 6 plus storey apartment blocks have appeared from nowhere and where little old ladies in their little old houses now have huge concrete blocks next to them; you do not see that the Portuguese side of the border.

Above, Spanish planning at its worse in Salvaterra, just across the river from us. Great, lots of new shops and restaurants for us to go to. Not so good for this houseowner who has 5 or even 6 storey apartment blocks now on every side. When we first went to Salvaterra in 2003, this road was all old single storey houses, now....... Which only goes to show you can not rely on the views from your house and grounds unless you own the land next door or it is protected by preservation orders and zone restrictions!

On the taxation side, Portugal is far more attractive than Spain. As we basically wanted to take early retirement and raise our children off our savings, the fact Portugal does not tax wealth (assets in Portugal) was a major benefit to us. If our home was in Spain, a buyer would have to pay up to 43,750 Euros a year wealth tax on the property alone! Capital gains on property and inheritance tax in Portugal are also much better (lower or non-existent) than Spain. In fact, the only tax to grumble about in Portugal is the (hidden) vehicle licensing fee (tax) which makes cars 30% more expensive then in Spain, but the EU has already mandated Portugal must drop this back door tax within the next 3 years. Will this simply get added to the tax burden elsewhere? Apparently not as Portugal is fast catching up on its income tax, municipal property tax (rates) and VAT cheats, so they are getting more tax revenues this way. An example of tax fraud is where many Portuguese owned homes were declared as having only one storey when they had two (municipal property tax is based on a number of things, including storeys, living space and number of rooms). As these get sold, the local council now comes around and reassesses the council tax according to what actually exists! And yes, we had our property reassessed shortly after we moved in.

Capital Gains Tax (Individuals)
Capital gains tax on property sales in Portugal for residents are treated as income and taxed accordingly. Tax breaks exist for Portuguese residents but not for non-residents that make it very sensible to be classified as "resident" when you sell any property! Home owners that have their principle residence outside Portugal pay a flat rate of 25% of their capital gains on any property sale in Portugal. Residents receive a 50% exemption before the gain is calculated along with any other taxable income. However, if your Portuguese property is your main / registered residence and you sell it, you can invest your sale proceeds including profit into a new principle address property without paying tax on the capital gains made on the old property (must be done within 2 to 3 years). If you reinvest less than the full sale amount of the former property, the taxable amount is pro-rated. In addition, you are able to offset your selling and buying costs (legal and moving fees), which brings down the maximum tax rate of 20% (50% of 42%) significantly.

Inheritance Tax
All immediate family members (spouse, children, grandchildren, parents and grandparents) are exempt from tax on transfers by way of gift or inheritance; anyone else is assessed tax at a flat rate of 10%.

Note: We have done our very best to accurately reflect the true tax systems of Spain and Portugal above, but we are not taxation experts nor financial advisors and you should ascertain the facts from a qualified source such as the local tax offices. This information was compiled from a number of other (credible) web sources in March 2008.