Westwood added that although Portugal’s property market has seen “considerable improvement” over the last two years, this is mainly concentrated in the “very focused expats markets”.
“This sends a very negative message to an already nervous market just showing a fragile recovery.
“Portugal has a history of introducing taxes that directly impact the higher end of the market and overseas investors which make it difficult for some expat investors to consider long term planning within this jurisdiction,” he said.
No expat exodus
Jason Porter, director of IFA firm Blevins Franks, which specialises in advising expats in Spain, France and Portugal, disagrees, pointing out that the levy is being introduced in “quite a clever way”.
He compared the situation to Spain, which in 2012 saw an exodus of wealthy expats after tax authorities restored a previously abolished annual wealth tax of 2.5% on worldwide assets valued over €10,695,996.
In contrast, Porter expects the majority of Blevins Franks clients, most of whom as a couple have properties in Portugal valued between €500,000 – €1m, to fall outside the property tax threshold.
“It’s [Portugal’s property tax] is only 0.3% and there are no bands or tiered system. For a married couple or a civil partnership, in 99% of cases, it’s not going to impact them as they get a combined €1.2m allowance.
“At that level it’s not going to force expats to leave,” he said.
Using offshore companies
However, Porter raised concerns that many long-standing expats, who in the in the past used offshore companies to buy homes in Portugal, may find themselves hit by an unexpected tax bill once the new duty goes live as companies will not benefit from the higher couple’s limit.
“A lot of people probably took that advice and bought properties like this four or five years ago and they probably haven’t realised that things have changed and using a company they will only get a 600,000 limit,” he warned.
