The new property levy replaces a more punitive 1% charge on homes valued above €1m, which has been abolished.
The new tax, which is an annual rate of 0.3% on properties valued at over €600,000, was originally announced last October and came into force on 1 January.
The allowance applies per individual, so a married couple or those in a civil partnership would only face a tax on any jointly-owned properties over €1.2m.
It also applies to companies and estates which each qualify for the €600,000.
Speaking to International Adviser in October, Ana Duarte, director of private wealth at PwC in Portugal said the levy will be introduced under Portugal’s council tax system, known as ‘Imposto sobre Imóveis’ (IMI).
The charge is based on the tax value of the property – calculated by local government authorities – rather than using the market value of a property and its often 30% lower than the latter.
As a result, Duarte said the move may be “beneficial” to some of the estimated 18,000 British expats currently living in Portugal.
Portugal’s blacklist
Earlier this month, Portugal’s government also removed Jersey, Isle of Man and Uruguay from its latest blacklist of jurisdictions.
If a tax resident of Portugal has a bank account or investment in a jurisdiction on the blacklist of ‘tax havens’ – which still includes Guernsey and Gibraltar – income is taxed at a higher rate of 35%, compared to the flat rate of 28%.
According European IFA firm Blevins Franks, from 2017, Portugal’s official blacklist is longer the sole source of determining whether a jurisdiction is blacklisted.
“Now, where the rates of tax levied in a jurisdiction are less than 60% of the equivalent Portuguese tax rate, the jurisdiction will be deemed to be blacklisted,” said the company in a blog post on its website.
Blevins Franks, which specialises in advising expats in Spain, France and Portugal, warned that this could affect clients who own a Portuguese property through a company since the entire value of the property would be subject to the new wealth tax, with no allowance.
“If the company is wound up and the property distributed to a Portuguese resident, it would liable for 35% corporation tax,” it added.
