Why investing in Real Estate is a secure way of saving for yourself and your loved ones?

Many of us wonder about the best and safest way to invest our money and save it for our own future and our loved ones’. Shall we keep it in a savings account, do some financial investments (more or less risky), or even buy a property? Of course, diversification is the key to risk control, but buying a property is probably the securest way of saving for your retirement and the best asset you can leave to your family in the future – but starting from now.

How to invest and explore the potential of your Portuguese property?

Aside from the warm weather, delicious food and wine, nice people, wonderful beaches and countryside, Portugal has a very attractive legal and tax system when it comes to investing in real estate, and BREXIT will not change it.

In fact, one can buy a property in his and/or his children’s name and keep the right to use it and rent it throughout his entire life (the so-called right of use and benefit). By having a property in the children’s name with parents’ right of use and benefit, when these have deceased, the children will automatically and in equal parts acquire full ownership rights over that property. Until then, the parents can make the most of it, and of course rent it on a long or short-term rental scheme.

Taxation over rental income

The standard tax rate for rental income generated in Portugal is of 28%, but luckily since 2019 there are exceptions foreseeing lower rates for long-term rentals (with at least a two years’ duration), and several costs directly related to the property are deductible for tax purposes.

In addition, in may cases it is also possible to license a property for local lodging activity (Alojamento Local or just AL) which is still a very attractive business for property owners in Portugal. The legal requirements of a local lodging establishment and the taxation over income generated through this activity are specific and not the subject of this short Ask the Expert.

Inheritance Tax? 

The reader must be thinking at this point – well, but isn’t there an inheritance tax due by the heirs when the property owner passes away? In Portugal, at the moment there is no Inheritance Tax. In addition, when a person dies, his/her spouse, ascendants and descendants (direct heirs) are exempt of stamp duty over the inherited estate.

Will the heirs pay Capital Gains Tax over 100% of the future property sale price?

Again, the answer is no. Although the direct heirs acquired a property free of charge, should they decide to sell their inherited property located in Portugal the Capital Gains Tax (CGT) calculation will not start from zero! In that case, the Capital Gains Tax will be based on the value that the property has for tax purposes (also known as Property Tax Value) duly updated by the applicable monetary devaluation coefficients.

The Property Tax Value is how much a property is worth for the Portuguese Tax Office, (namely for the purpose of determining the Municipal Property Tax due by property owners every year), and usually is below the property market value.

In conclusion…

Investing in real estate – especially in a beautiful country like Portugal – means having an asset that:

  • Is perfect to enjoy with family and friends during holidays and retirement
  • Tends to value over the years
  • Is able to generate good rental income
  • Can pass to a next generation free of tax
  • Can be sold with Capital Gains Tax savings, including by those who have freely inherited the property
  • Has zero bankruptcy risk of third parties

The information hereby provided is general. It shall not to be deemed as legal advice and does not prevent the reader from consulting a solicitor.