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IMI and IRS 2022: Which are the Best Cities to Buy a House in the Algarve?

New year, new life! At least when it comes to the tax rate for municipal property tax - IMI. In many municipalities, the IMI rates have changed. Even in Lagos, the tax has been reduced from 0.34% to 0.32%, which is very close to the minimum allowed. Lagos has also decided to grant tax relief to its residents in 2022 on their Personal Income Tax - IRS.

 

Photo by jojo-franke – Unsplash

 

Do you understand what a property tax is? What is it for, how it is paid, and when may you pay it? We rounded up all of the facts here so that you may understand why everyone who owns a home is required to pay this tax.

 

 

What exactly is IMI (Municipal Property tax)?

 

IMI was established in 2003 and has undergone several constitution revisions since then. The revenue generated from this tax, paid by all property owners, reverts to the Municipal Councils, and it is one of the main sources of financing.

 

The government is the entity that annually sets the maximum and minimum limits for this tax. The municipalities decide on the percentage of the final rate for each city. For 2021, the minimum rate for the urban property was 0.3%, and the maximum rate was 0.45% or 0.5% in exceptional cases. For rural properties, the rate was 0.8%. Each municipality must disclose the rate applied to the Tax Registration Value – VPT by 31st December each year. Otherwise, the minimum rate is automatically applied.

 

This year, the rates of the 308 municipalities in Portugal have already been announced. If you still do not know how much you will pay in 2022, you should consult the Finance Portal by entering the year 2021 in the date field and the region where the property in question is located. Here, you will also see if there is a deduction per family. In this case, municipalities can only choose whether or not to apply this deduction, and the values are fixed (€20 for one dependent, €40 for two dependents and €70 for three or more dependents). You should also check the amount of IMI applied to the VPT depending on whether you own an urban or a rural building.

 

As for deductions per family, you should know that Lagos will not apply this deduction but has a significant tax cut. The city ranks second as the municipality with the lowest tax rate in the Algarve region. In the municipality of Vila do Bispo, the minimum rate set by the government applies, as well as the application of deductions per family. In the neighbouring town of Portimão, the rate has been reduced from 0.43% to 0.42% and deductions per family are also applied.

 

Photo by olga-delawrence – Unsplash

 

When should I pay the IMI?

 

In May, taxpayers make their first or one-off payment of IMI, having been informed the previous month by a letter with the bank details.

 

The payment dates for municipal property tax depend on the amount you pay. In other words, you can pay the IMI in one, two or three instalments. If the amount does not exceed €100, the taxpayer must pay the entire amount in May. If the amount is more than €100 but less than €500, the taxpayer can pay in two instalments in May and November. If the amount exceeds €500, the payment can be made in three instalments:  in May, August and the in November. Payments must always be made until the last day of the respective month.

 

Property owners with a Tax Registration Value - VPT of more than 600,000 euros are liable to a second tax, the additional municipal property tax - AIMI. This is a newer tax that affects municipal buildings and building land.

 

 

How is IMI determined?

 

The municipal property tax - IMI is calculated straightforwardly. All you need to know is your property's Tax Registration Value - VPT and the tax rate of the municipality where your property is located. All you have to do to find out your property's VPT is go to the Finance Portal. Once you have these two figures, multiply the tax value by the VPT to get the total amount to pay.

 

 

 

How can you pay less or get an exemption from IMI?

 

  • Pay less IMI - The VPT is revised by the Finance Ministry every three years based on currency depreciation. IMI increases as a result of this update. Because this assessment does not consider the property's age or location, these two factors may reduce the value of IMI in the new review.

If you have never asked for this review, you may be paying more IMI than you should. If you think you are in this situation, you can simulate the VPT on the Portal das Finanças to understand whether it is worth applying for a revaluation of IMI. Remember that you should only apply for this revaluation if you are sure that you are paying more than you should. If the reassessment results in a higher score, you will pay more IMI. There are online simulators to help you find out if you should ask the tax office for a revaluation.

Once you have confirmed that you can save on IMI, you can request a new assessment by December 31st each year, taking effect in the following year. You can do this online or at a tax office.

 

  • IMI Exemption - For the first three years, new owners of their permanent dwelling are exempt from paying IMI. To do so, they must meet the following criteria: The property's VPT cannot exceed EUR 125,000, and the family household's annual taxable income cannot exceed EUR 153,300.

Another option to avoid paying this tax is if the household's annual gross income is less than 15 295 euros and the house's VPT is less than 66 500 euros. The exemption is automatically granted by the Finance Ministry if these conditions are met.

 

 

 

What does the IRS reduction imply for municipalities?

 

Although we are still in the grip of a pandemic in which all revenues are essential to municipalities, 37 other municipalities have cut their participation in the IRS. The City of Lagos was among those that participated in this initiative, part of the programme "Lagos Apoia – Programa de Apoio às Famílias e Economia Local". The City Council resolved to cut the percentage of IRS involvement for taxpayers from 3% to 1.5%. The municipality of Vila do Bispo agreed to waive 5% and refund this value to inhabitants. The 5% is used for the municipal treasury in Portimão.

 

What exactly does this support mean? Every year, the government provides each municipality with 5% of the total revenue from IRS collected in that municipality. Since 2008, the municipal assemblies decide what percentage goes into their vaults. If they decide on less than 5%, the balance is refunded to the city taxpayers. In Portugal, 171 municipal councils decided in 2022 to return this revenue to their citizens.

 

 

Which are the Best Cities to Buy a House in the Algarve in terms of IMI and IRS reduction?

 

These are the data for municipal property tax (IMI) and personal income tax in the Western Algarve region (IRS). See our recommendations for Algarve real estate.

 

  • Aljezur - will have the lowest IMI rate, 0.3%, and the municipality will entirely renounce the 5% IRS percentage and return this value to the inhabitants. There will also be a family deduction for municipal property taxes.

Discover this four-bedroom home for sale in Aljezur.

 

 

 

  • Vila do Bispo - The IMI minimum rate (0.3%) is applied, as is the family deduction, while the 5% IRS is also remitted to citizens.

Look at this six-bedroom property for sale in Budens, Vila do Bispo.

 

 

 

  • Lagos - As previously stated, the IMI has been reduced to 0.32%, and the IRS labour force participation rate is now 1.5%.

Get to know this 3-bedroom apartment for sale near Porto Mós beach in Lagos.

 

 

 

  • Portimão - The IMI had a slight decrease to 0.42%, although the IRS participation rate is 5%, and taxpayers will not be repaid for this amount. In this municipality, there will be a tax deduction according to the number of family members.

We suggest this 3-bedroom villa with a garden for sale in Portimão.

 

 

 

  • Monchique - You will see the minimum percentage of IMI (0.3%), the deduction per family members and a IRS rate of 2.50% applied here.

See our proposals for houses for sale in the municipality of Monchique here.

 

Photo by Lukas – Picjumbo

 

 

  • Lagoa - IMI rate of 0.36%, including the reduction according to the number of family members, and IRS participation rate of 3.0%.

This magnificent four-bedroom villa with a pool is for sale in Lagoa.

 

 

 

  • Silves - This municipality maintains the minimum rate IMI (0.3%) and the deduction per family members. In addition, a zero rate has been requested for the municipal right of way levy, so that municipalities are not billed for electronic communication services.

In the municipality of Silves, you will see this 3-bedroom villa for sale located in Silves Golf Resort.

 

 

 

Although we are still in the grip of a pandemic, municipal councils in the Algarve are taking steps to encourage property owners and potential property owners to dwell in the area. Lagos has been a good example of this, both for taxpayers and property owners, as well as for Lagos' businessmen, by not introducing the payment of profits.