The Buying and Legal Process in Madeira
NB: These brief notes are intended only to guide you at the initial stages of property hunting in Madeira. Your appointed lawyer will be able to advise you of the full technicalities of property purchase and will process these tasks on your behalf.
Why use a Madeiran lawyer? As the property you have purchased is in Madeira, then any conflicts arising to the property will be dealt with under Madeiran law. Therefore, it is important that your lawyer is competent in all aspects of the law and can communicate in both Portuguese and English.
Your first step. If you are interested in a house, make an offer directly to our representative. If it is accepted, you must make a down payment and sign the deposit or reservation contract. The private contract between the two parties involved is the (contrato promessa de compra e venda - a promissory contract). If you are purchasing a new build property this will be between you and the builder. If you are purchasing a resale property then this will be between you and the owner of the property.
The contract should include the following:
- Full description of the two parties
- Full description of the property. If a new property – plans of the property, specifications of the materials, plan of the site and building permission. If a resale property – inscription number in the land registry.
- Price of the property and stage payment details.
He will check that all the details are correct within the contract and explain it to you before you sign it.
2 – Certificate from the Land Registry & Report
He would carry out a land registry search to verify that everything stated in the contract is true:
Establish the current ownership
Check that the property is free of debts and other charges
Building permission
3 – Report & Payment Schedule
He will then send a report to you detailing the results of the searches and if there is no problem with them he will instruct you to transfer the next payment.
4 – Preparing Power of Attorney
Once the property is almost ready for completion, he will ask you to give him power of attorney. This is a simple process where he will send the relevant forms for you to complete. Power of attorney will enable him to complete for the property on your behalf without you being present.
5 - Pre completion checks
Just prior to completion he will make further checks on the property to ensure there are no outstanding debts which you could inherit with it. Council tax, electricity & water, and community of owners will all be checked before you sign for the property.
6 – Obtaining your Numero de Contribuinte
This is a fiscal identification number and is required before you can make any transaction in Portugal, such as purchasing a property and paying taxes. He applies for your number on behalf of you using the power of attorney.
7 – Paying taxes
Prior to the deed being signed the seller must have all the taxes relating to the property in order, otherwise it will not be possible to pay the transfer tax (IMT). All people who purchase a property in Portugal are liable to pay the IMT. From the day of signing you have a maximum of 30 days to register the transfer into your name at the tax department.
8 – Completion
On completion he exchanges the balance of the price, ownership and keys of the property. This takes place in the notary’s office. If the property is a new build he will also check that the builder has issued a ten year guarantee for any damages on the building and a certificate from the town hall which certifies that it is a liveable home.
If you did not grant him power of attorney he will help you to obtain your numero de contribuinte before the completion day and assist you at the notary’s office on the day of completion.
9 – Inscription of ownership in the land registry
After signing, he will present and register the notarised deed at the local Land Registry. The Land Registry maintains all the details of the property and records financial charges and other matters that may affect the title. Registering the deed provides the highest public level of protection.
10 – Transferring utilities into your name
He will change the water and electricity supplies into your name.
Frequently Asked Questions
Do I sign the Contract prior to checking it with my lawyer?.
The contract is not binding for the buyer; therefore you are not committed to pay the total amount if the contract is signed. If you fail to pay any of the stage payments you would be in breach of contract and would loose your deposit. However, if the vendor pulls out your deposit will be refunded.
What can I expect the stage payments to be?
New builds:
30% on signing the contract
30% - After completion of Footings
30% - After completed structure
10% - Upon completion
These stage payments are agreed individually with the builder and maybe in accordance with the stages of construction.
Resales:
10% to 30% on signing the contract
70% to 90% on completion
What are the expenses incurred when buying a property?
Example:
Tax (IMT)
Up to 81,600ˆ exempt
81,600ˆ - 112,200ˆ 2%
112,200ˆ - 153,000ˆ 5%
153,000ˆ - 255,000ˆ 7%
255,000ˆ - 510,000ˆ 8%
Over 510,000ˆ 6%
Buildings that are not
For habitation 6.5%
Land properties 5%
Notary Fee 1% of the purchase price
Stamp Duty Tax 1% of the purchase price
Land Registry 150ˆ
Water 25ˆ
Electricity 5ˆ
Lawyers Fees 1% of the purchase price
When do I pay the expenses?
The tax, land registry and the notary on completion. The lawyer’s fee is paid 50% when hiring his services and 50% on completion.
How do I obtain finance to purchase my property?.
It is possible to raise finance to assist with the purchase of a property. This can be done by either obtaining a loan from a Portuguese bank or from English lenders. See our page Mortgages
What documents would the lawyer require from me?
To apply for a Madeiran mortgage you would require proof of income and if you are self employed you would need 3 years audited accounts.
What are the average interest rates?
Madeira interest rates are generally lower than UK rates.
How do I open a bank account?
All you require is your personal number from the tax department and your passport. There is no need to deposit any money when opening a Madeira bank account.
How do I transfer money into my overseas account?
You can make transfers direct from your UK bank to your Madeira bank account. Or you can use a commercial foreign exchange company who may be able to offer you more competitive rates and quicker transfer times. Click here for details
How can I secure an exchange rate?
If you use a foreign exchange company you will be able to secure a rate for the total amount you require for your purchase by paying a deposit. This enables you to calculate the sterling cost of the property and eliminates the risk of rate changes which could lead to the property costing you more in sterling by the time you complete. Click here for details
Is there a survey carried out on the property, structure and foundations?
If you are buying a new build property there will be a 10 year builder’s guarantee and a certificate from the architect.
If you are buying a resale property a survey is not carried out to check the condition of the property, however, Madeira Property Centre can make arrangements and advise you of the cost if you wish to have the property surveyed.
Are the new properties normally finished on time? What are the builder’s responsibilities if they do not finish on time?
In the contract it will state the completion date and any other clause relating to delayed completion.
What would happen if the builder goes bankrupt?
If the builder goes bankrupt then the court will decide how much money you are refunded depending on what is stated in your contract.
Do I need to be present to obtain my Numero de Contibuinte?
No, not if the power of attorney is in place.
Do I need to be present for completion?
No, not if the power of attorney is in place
When do I get the keys to the property?
You will be given all the keys to the property on the same day as you sign the title deeds at the notary’s office.
When do I have access to my new property?
On the day of completion when you receive the keys.
Who is the Notary and who attends on the completion day?
The Notary is a public official who oversees the signing of the title deed and records it on public record that it was understood by both parties and signed in their presence.
Everyone who is involved with the sale and purchase of the property attends. For example:
Seller, buyer, agent (if one was used), bank manager (if a mortgage is to pay for the purchase), lawyer and notary.
Who holds the title deeds to the property?
In England it is common place that your lawyer will hold the deeds to the property. However in Madeira the inscription in the land registry is proof of ownership therefore you will hold the deeds to the property.
Do I need to apply for building permission if I wanted to extend my property or add a swimming pool?
It is always necessary to apply for building permission and to respect the building plans of the area where the property is situated.
What are the yearly running costs for owning a property?
The council tax rate is declared by the government each year. In 2004 it was 0.85% of the fiscal value of the property.
How do I pay these taxes?
You can appoint your lawyer as your fiscal representatives and he will take care of your tax returns.
Who should be the owner of the property for tax reasons?
There are a number of ways to purchase the property, each way (listed below) has its advantages and disadvantages. What would be best for you would depend on your personal circumstances. We would be happy to discuss the various options and advise you as to the most beneficial for you.
- In your own name
- In joint names: you and your spouse or co-purchaser
- In your children’s names or the name of the person who will inherit the property
- In the name of a limited company
Do I need a Madeira Will?
It is not entirely necessary; however, there are good reasons for making a Madeira Will. Although your English Will probably will be recognised, the cost of having it recognised is usually greater than the cost of dealing with a Madeira Will. Your lawyer will be pleased to help you make a Madeira Will.
What is the inheritance tax on a property?
Since January 2004 the inheritance tax from parents to sons and between husbands and wives has been abolished. However, you are required to declare your inheritance to the tax office within 60 days. Inheritance tax between brothers is at 10% of the inheritance value.
What are the capital gains taxes when selling the property?
The capital gains tax is calculated as a percentage of the difference in value of the property from buying to selling it.
Do I have to pay income tax?
Non residents do have to pay some income tax. Your lawyer or accountant will be able to help you complete your tax return.
Who pays the Seller’s tax?
Providing you follow the guidelines, these are the responsibility of the seller.
Will I be charged commission to transfer my pension?
It is against EU banking regulations for you to be charged commission on pension transfers.
How do I become a resident?
To become a resident of Madeira it is necessary to apply to the immigration office with a number of various documents. Madeira Property Centre will be happy to help you with this application.
How do I get medical coverage in Madeira?
When visiting any EU country you are entitled to free medical cover providing you have the form E111 for all persons travelling. |
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