Costs involved in selling a property

[Madge]

Hi

We have found ourselves in the unfortunate situation that 5 years after buying our lovely little 2 bedroom villa in Sesmarias that we now will probably have to sell.

However we are trying to do the sums to see if it is worth it or whether we should continue to try and hang on in there in the hope the exchange rate and the market will improve. I have emailed the solicitor that we went through when buying the property but no reply yet so I am hoping someone on this site can shed some light for me.

We bought the property for 200,000 euros, it has been suggested we put it on the market at about 285,000 euros including the agents fees of 5% + tax. Is Capital Gains 25% and do we pay that on the fees or purely on the profit?

Also we have had various work done to the property - new alarm system, new windows, new security shutters, re-grouted pool and pool heating. Can we offest the cost of this work against the Capital Gains tax?

What other fees as the seller do we need to consider and any idea of roughly the amounts for these?

Any help would be greatly appreciated as we need to make a quick decision! Oh and any recommendations as to what agent to use would also be a help.....

Thanks

[widge]

Madge, sorry to respond with a question rather than an answer but, have you ever rented the property to the public? Tax concessions are available in the UK until end March 2010 for those that have and have incurred losses.

[Madge]

Hi
yes we do rent the villa but i didn't know about the tax concessions

[EMM]

What exchange rate did you get when you bought as this could make a big difference to the " market " price assuming that you want to sell quickly in todays market.

IE If the exchange rate at the time you bought was £1 = 1.45 then 200.000 euros cost you £138,000

If you sold at 200.000 euros then at todays rate E1.18 * then 200,0000 euros converted back into sterling = £169,000.
* You always get a lower rate selling back euros .
You can see that you will make a significant profit at well below the price suggested by the agent. Eg E245,000 = £208,000.

This assumes , No mortgage or a sterling mortgage.

Work out how much money you need or want to make.

Whatever the agent says do you want to wait the 2-3 years that some properties have been on the market for.

Also a lower price = lower estate agent costs and reduced capital gains ( Euros ) but still enabling you to make a sterling profit.

[cereza]

Madge - when you bought your villa did you use Sterling which was converted into euros- in which case EMMs calculation applies - or did you use euros - either through a euro mortgage or euros you already owned in which case EMMs calculation does not apply?

As far as allowable deductions are concerned you can include the purchase tax paid when you bought the villa , the agents fees on the sale , lawyers fees and the cost of any major building work or improvements such as a new kitchen or bathroom - you will need invoices with contribuente numbers on them. Maintenance work such as regrouting the pool is not allowed.
Once you have the nett profit then the Portuguese tax is a straight 25% for a non resident.

There is one potential problem if you bought a resale villa. The tax office only works on the freehold price of the property - they take no account of the price of the furniture or fixtures and this can be costly. Until recently it was possible to reduce the freehold split of the purchase price by 30% or more by increasing the fixtures cost accordingly which reduced the sellers tax liability and also the buyers purchase tax however the tax man now will only accept a fixtures split of 10%. So for example when you bought for 200,000 euros your split might have been 140,000 for the freehold and now if you sell for say 250,000 euros the price for freehold split will be 225,000 euros -
your profit in this example will show as 85,000 euros gross instead of 50,000 euros thus increasing your 25% tax by about 9000 euros in this example.
So to calculate your potential tax liability you must know the freehold price of your purchase in euros.

Finally UK tax will be calculated on UK terms but they will take into consideration what you have paid in Portuguese tax and based on your figures there should not be any liability if the villa is in joint names because you each have an annual allowance for capital gains here.

I am only giving this advice from experience - I am not qualified so you should check it with a lawyer. Regretfully I do not know any estate agents well enough to recommend them but I would say that in the current climate you need an aggressive one.
Hope this is of help.

[Ma-Ja's]

Hi Madge, I am sorry to hear that you may have to sell your villa. I am unable to help on the cost, although I would be interested to find out the answer. With regards to estate agents, I can recommend Casa Iberia based in Lagoa. Their telephone number is 282 381 727, email address is info@casaiberia.com and website is http://www.casaiberia.com. Both Elza and Rainer are very good at what they do and speak very good English. Jan

[Polli62]

Cereza re allowable deductions on improvements on your property. I have been told you can only claim for them if they have been done within the last 5 years, do you know if this is correct?

[shanagarry]

Hi Madge - having spent the last 3 years trying to sell our place - we have only recently secured a deal. Regretfully, I don't have a solution that will work for you - as we are moving permanently to Carvoeiro and I suspect you just want to sell and realise the proceeds?

One of the highlights in your post is the lack of assistance from the lawyers - probably the same ones who relieved you of a considerable sum when you were buying - the estate agents are no different and will do so again next time round.

The advice from EMM is very good - but the question from Widge refers to UK tax concessions - that is assuming HMRC are aware of your rental income - so tread carefully.

There was a time when the numbers of estate agents could be easily counted - these days finding reliable agents can be counted on the fingers of one hand. During our selling attempts, we used 9 at different times and the only ones that we felt put themselves out were Carleton Properties (English) in the village and Algarvacation (Dutch/German - perfect English) in Porsches - but I suspect there will be tales of woe from those who may not have had the same level of assistance we enjoyed from those I mentioned. Regretfully - the entire estate agency thing is a lottery - the odds of getting lucky are very long. From our experience - there is one particular agency to avoid (pm me if you wish to know and I will tell you).

Be patient in you efforts to sell - especially in the current market - there will be times when you will question your sanity - persevere - but don't expect it to be quick.

Good luck.

[cereza]

Cereza re allowable deductions on improvements on your property. I have been told you can only claim for them if they have been done within the last 5 years, do you know if this is correct?

Regret I have no experience of that and so I don't know - sorry.

[BobT]

Hi Madge

You can deduct the cost of all property improvements made in the five years up to the date of sale. You must however have proper receipts with your name, your property address, and preferably but not necessarily your NIF number (if you have one).

With regard agents (leaches in my view) whilst they all start at 5% or even more, many will move to 3% if pushed hard. Remember they want the business as much as you want to sell.

With regard lawyers (mainly corrupt leaches in my experience), you don't actually need one to sell. Far more important when you buy. We sold a property in 2008 without a lawyer. We had an interpreter/translator/representative, from our bank at no cost to us, as all of the proceeds from the sale were initially going on deposit in the bank. The advtantage of a reprsentative from the bank is that they can verify that the payment (bankers draft or wire transfer is good, before you leave the notaire's office).

Good luck with the sale.

BobT

[TCSltd]

Whilst I agree that most estate agents are a bit dubious, I can recommend "Minita". Based in Silves Minita, the owner, is a reliable Portuguese lady speaking perfect English. She is assisted by an English couple, so no language problems. We purchased via them, and I know the previous owner of our property was very impressed by their service. They are a long established company, well regarded in the town.
http://www.minitarealestate.com/

[mike123]

Hello Madge,

I might be interested in your unit. Maybe send me a few pics and i'll see if my wife would like to take a look at it.
We always like to look at the kitchen .So see if you can get a pic of that as well.
thanks

Mike

[suziebear]

Hi Madge, we too are selling our property in Sesmarias!! We have our property with an estate agent but, on their advice, have dropped it to a figure that I personally am not happy with, they have agreed 4%. We have had some offers from people who are just blatantly taking the **** mainly "builder types" that are looking for a "project". Im afraid that as with all property sales, the only winners are those being identified as Estate Agents, Lawyers, and Tax recipients - certainly not the seller!!!!!!!!!!. We live here, but because of circumstances "beyond our control" are downsizing. It was always our dream to come here and make our house here a home (it has been ours since it was built 28 years ago!) sadly that cannot be. (I secretly wish that we dont sell it and find some way of keeping our house, its breaking my heart if the truth be known, its certainly not a "project" for some builder - its our only home!!!). I sincerely wish you the best of luck with your sale. x

[EMM]

Selling a property is like selling anything else, what we the sellers think counts for little it is what a buyer is prepared to pay tha matters.
Probably most of us have bought or sold at one or the other end of the property cycle at one time or another. I know we have.

The problems with many estate agents in Portugal is that they have no experience of the " bad " times, they did not have to work too hard to sell and have got used to their high commissions and have lived accordingly.
This was the case in the UK many years ago until a few smaller agents cut their rates and forced the others into following.

The Algarve is awash with unsold new properties built to current standards with amny additional features not found in older buildings.

Properties have to be priced to sell unless you can afford to wait/gamble on the market returning.

To the Moderators, Is their not scope here for a revived " properties for sale section " where owners can put on their details photos etc ( for a modest cost ) ??