The current method for establishing the taxable values of property in Portugal was introduced with effect from 1st January 2004. This valuation is the base for the annual municipal property tax (IMI), it also sets the minimum value for property purchase tax (IMT) and the stamp tax (IS) (IS is paid on purchase, gift or inheritance or property).
Properties that have changed hands since 1st January 2004 are already valued using this method. The effect has been to establish values that approximate, or even exceed, market values.
Urban properties that have remained under the same ownership since 2003 are only now being valued using the new methodology. The tax office is carrying out this general revaluation of urban properties based on information in their files and also from house plans maintained by the local council as at 30th November 2011.
Taxpayers may expect to see the first effect of this revaluation in their April 2013 tax bills. Usually, the increased tax value will result in a hefty increase, partly offset by a reduction from 0.8% to 0.5% in the maximum tax rate that a local council may apply.
This part is complicated but it is useful to know what is being valued.
Property valuation is based on factors such as location, size, use, age and comfort. The formula used is:
Vt = Vc x A x Ca x Cl x Cq x Cv
Vt = Taxable value
Vc = Decreed construction cost per square metre (2012 = €482,40), uplifted by 25%.
A = Area, with different weightings to living area, annexes such as garages, gardens and tapered down for larger properties.
Ca = Usage coefficient, with a maximum of 1.2 for commercial activity, 1 for housing, and uncovered parking at 0.08.
Cl = Location with a minimum factor of 0.4 and a maximum of 3.5, based on desirability and established by decree.
Cq = Comfort factor with a minimum of 0.5 and a maximum of 1.7, where positive factors include houses (rather than flats), gated condominiums, garages, swimming pools and tennis courts and negative factors include absence of water, electricity, gas, sewer or paved roads.
Cv = Age of building, varying from a factor of 1 for a new building to 0.4 for a building over 60 years old.
Property owners should receive a notification of revaluations, either electronically or by registered mail. The presentation is computer generated and printed in small letters, so mystifies many recipients who are tempted to put it aside. This may however be an expensive mistake, since there is only a short time to respond.
Since many of the factors used for the general revaluation are only now being introduced from earlier and frequently outdated manual records to the computer database, the general revaluation will be prone to error.
Article 130, nº 3 of the IMI code gives the taxpayer the right at any time to contest mistakes and errors in the tax office records, namely:
Otherwise, the taxpayer has 30 days to request a second valuation by an “independent” valuer. Should this second valuation result in the same or a higher valuation, then the taxpayer will pay the valuer’s fee.
This second valuation may be appealed in court on the basis of any illegality, such as incorrect data being used in the valuation formula.
On the basis of “tax deferred is tax saved” taxpayers will generally wish to minimise the taxable value of their property and resulting IMI bills. A 2013 budget proposal is for an additional tax on properties valued over €1million. Nevertheless, potential heirs to a property may welcome a higher taxable value, since this will form the “cost” price for capital gains tax calculations upon an eventual sale.
For a professional check of the calculation of your property valuation and for the submission of any appeal, contact