Buying and selling in Portugal

 In Opinion

We recently went to the notary to complete the purchase of an apartment closer to the centre of town. The deed we signed is in the same form as 30 years ago, but the surroundings and the notary’s office have changed beyond recognition. Then in Lisbon, Cascais or Lagoa (Algarve) we had to climb the stairs to an office where crowds of people waited to be seen. Now notaries sit in light-filled offices with modern equipment.

The biggest difference between the practice in Portugal and England used to be clear as soon as the parties started to discuss the price. In both countries, a price had to be agreed but, in Portugal, they also had to agree what price should be declared before the notary in the escritura, or final deed.

It was generally impossible to get a developer to agree to sell a property if a foreign buyer insisted on declaring the full price because one sale at a high price would expose the under declarations on all the developer’s other sales. Buyers liked under-declaring because it reduced the SISA (transfer tax at up to 10% on the declared price) and buyers also avoided the revaluation of the property for the purpose of local rates to whatever price was stated in the escritura.

At that time, the rate of stamp duty on property purchases in England was 1% and the 10% rate in Portugal seemed not only extortionate but also designed to make up for all the under declarations. Now the tables have been turned. The combined rate of transfer tax (now called IMT) and stamp duty in Portugal goes up to a maximum of 7.2% while the maximum rate in England has gone up to 12% on a main home purchase, plus an extra 3% on purchases of other residential properties.

Permission used to be required from the Bank of Portugal to import foreign currency to buy a property and, at one point, the Bank started to check up that the right price was being declared; but quite soon money transfers became free from control.

Now money transfers are subject to various money-laundering checks. We used a money transfer service last year for a part of our purchase price and they wrote to us asking us to “please explain your source of wealth … If your source of wealth is from your salary, could you please let us know the name of your employer, your position title and your salary? Supporting documentation may be requested in the future”.

We replied that the monies came from a property sale in England, without giving any details, and no further queries were raised. The remainder of the purchase price was transferred to our Portuguese lawyers without any money-laundering queries, but getting our UK investment brokers to transfer money to them turned out to be fraught with complications since the brokers had to be satisfied that the lawyers were reputable transferees. Fortunately, the Ordem dos Advogados has a version of its website in English and our lawyers’ registration did not need to be translated.

Previously at the escritura, when it came to the time for the price to be read out, the notary would ask if it had all been paid and everyone would nod vigourously. Now the escritura must contain a whole raft of extra information which is designed to combat money laundering and tax avoidance. A copy of the contract must be attached as well as the details of all the cheques handed over in payment. The estate agents are also now identified in the escritura and held co-responsible for the true price being declared.

A seller used to have to queue for long periods at both the Land Registry and the Finanças (tax office) in order to get updated title documents and caderneta (tax registration certificate). But now these documents can all be obtained online and personal attendance is only needed at the escritura. Nor does the purchaser or his or her lawyer have to go personally to the Finanças to pay the IMT before the escritura. It is paid by bank transfer and the details recorded in the escritura.

Although under Portuguese law a public deed is needed for the transfer of property and this deed should be available for inspection, in practice the only people who see every escitura are the Finanças to whom the notary sends a copy of every document. The Land Registry in Portugal is still not open to public inspection and, as yet, there is no move to follow the English example where all prices are published by the Land Registry.

Since so many of the purchasers in Cascais are foreign and come with cash ready to buy, we have had to buy first, and only now are we selling our house. We have had our share of French and Brazilians coming to view; they make up 29% and 19% of foreign buyers, respectively, but there are still plenty of Portuguese buyers and we hope soon to be back at the notary to complete our sale.