The top-end property market is in shock in the Algarve as some clients' annual property tax bills rocket by €75,000.
Owners of homes with a Patrimonial Value (Valor Patrimonial) of more than a million euros in 2012 will pay an additional tax of 0.8% of the property’s value. This will rise to 1% in 2013. Properties held offshore can expect an annual tax of 7.5% of the VP.
The increased taxation of 'luxury homes' had been approved at the last meeting of the Council of Ministers, but full details will only be known after the government has sent to the proposed law to Parliament.
The proposal is that by the end of November 2012, homeowners whose house’s VP exceeds one million euros will have to pay, by way of Imposte Selo, an additional fee of 0.8% if the property has not yet been re-evaluated for rates under the 2003 re-rating rules. If the property has already been re-evaluated under the new rules, then the new stamp duty rate will be 0.5%.
For 2013 the rate will be around 1%. The exact rate to be applied will be decided by the municipality where it is located.
The legislation that the Government wants to see approved also provides for an additional tax of 7.5% of the VP of properties owned offshore. This rate will also apply this year, 2012. That’s an extra €75,000 euros a year for a property valued by the state at €1 million.
These extra taxes are only for residential property and in the Algarve are clearly targeted at the rich foreigners who rapidly are losing interest in investing in Portugal when treated as cash cows.
Nigel Antheney-Hoare of taxation consultants Sovereign ,in Lagoa, commented “it flies in the face of the new immigration proposals due to become law on 9th October, allowing wealthy non-EU citizens to invest in property here to obtain residency visas.”
Offshore
The offshore company debacle ended a long period of government encouragement of the offshore industry. It was one of the largest fiscal scams in Europe as foreigners were lured to the Algarve by a regime complicit in pushing the ease of offshore ownership of property. This ended abruptly resulting in unbudgeted tax payments to the government by property owners, and all the additional expenses involved in changing from offshore ownership to individual or white listed company ownership. This period was one of shameless fiscal opportunism, looking back, it was theft on a grand scale.
This latest mansion tax may affect only the highest echelon of property owners but it sends out a powerful signal that you may be encouraged to live here but, like a turkey farmer kindly tending his swelling flock, December soon comes around.
In the meantime the government proposals, yet to become law - but mansion taxes are all the rage and a populist move - are set against a background of falling tax receipts from capital despite rises in the various taxation rates.
The Government also is to consider awarding itself greater powers to look at domestic transfers into offshore bank accounts. This last move will be like the turkeys above voting for Christmas, as many politicians’ illicit income streams end up paid into offshore accounts, such as the tens of millions in bank accounts in the Cayman Islands, Isle of Man and Gibraltar, share certificates and securities controlled by the family of ex-Prime Minister, José Socrates. This Paris-dwelling politician is living way beyond his declared means yet the Portuguese judiciary has said that he is too far way so ‘what can be done?’
These tax law changes were announced last week by the Minister of Finance, Vitor Gaspar in a last-ditch attempt to do his job and be seen to be applying taxes fairly across all sectors of society. They are designed to ‘help fix the budget deviation and meet the revised target budget deficit of 5% of gross domestic product’ but will not scratch the surface. This is a vote-winning political tax and like so many government initiatives, will have the opposite effect of that intended.
The amounts raised will go no way to fixing this hole and the new legislation effectively will kill the demand for higher-priced properties whose market value may even drop below their shiny new patrimonial values, bringing on a new set of tax problems...
New rates in summary:
All residential properties with a VP over €1m will suffer additional taxes before the end of this year as follows:
· Those properties valued under the old (pre CIMI) valuation scheme will pay 0,8% x the VP in a special Stamp Duty;
· Those properties valued under the CIMI valuation scheme will pay 0,5% x the VP in a special Stamp Duty;
· Those properties held by blacklisted companies will pay 7,5% x the VP in a special Stamp Duty;
It appears that in 2013 all properties with a VP over €1m will pay IMI at 1% with blacklisted taxed at 7,5%.
