Home exchange in Portugal: everything you need to know about property swaps

How do home exchanges work in Portugal? This type of transaction is becoming increasingly popular in the real estate market and we have the details.

Property swaps in Portugal
Property swaps in Portugal
31 August 2021, Redaction

The exchange of real estate, also known as a house swap, has been gaining more and more importance in the real estate market in Portugal, where this process is called "permuta". While the idea of a home exchange in Portugal seems straightforward, there are some important legal aspects in to keep in mind. In this article, with the help of Belzuz Abogados, we will clarify the main characteristics and legal requirements of home or real estate exchange contracts in Portugal, how a deal is done, the precautions to be taken and the potential advantages for the owners.

What is a real estate exchange contract?

An exchange contract can be described as an onerous contract through which 2 parties reciprocally and simultaneously transfer their rights over certain assets, which, by virtue of such contract, become part of the assets of their respective counterparts. Despite being a frequently used type of contract - often referred to simply as "house / property exchange" - this is an atypical contract, not being foreseen or regulated by Portuguese law, being based on the contractual freedom of the parties involved, as explained by Ricardo Pires Jordão at Belzuz Abogados.

However, this type of contract is subject to the form required for the transmission of the property exchanged, so that, in the case of an exchange of immovable property, the contract is subject to special formal requirements and must be concluded by deed or certified private document.

It should be noted that the rights exchanged do not need to be identical, nor that there is a correspondence between the value of the property exchanged, so in the case of the exchange of immovable property, it will not be necessary that there is any similarity in terms of price, typology or location. For example, if a property is valued at 300,000 euros it will always be possible to exchange it for another property valued at 200,000 euros by paying the difference of 100,000 euros.

How do home exchanges work in Portugal?

An essential precondition for exchanging property is of course to be the owner of the property. Once this condition is met, it is then necessary to find an owner who is willing to enter into a property exchange contract, with properties of interest to both parties.

Finding interested parties for this type of business can be difficult, as exchanging property is still a very small business in Portugal when compared with other markets. However, several instruments have been created to facilitate the meeting between owners, namely "barter markets" managed by real estate companies, social network groups dedicated to this type of business and even a simple search of the words "exchange", "swap" or "permuta" in idealista may help interested parties in this type of business.

Once an agreement is reached between the owners, it is recommended, in most cases, that a promissory contract is signed, in which the parties establish and bind themselves to the agreed terms and conditions, including the value attributed to each of the properties, the date on which the final deal will be signed, penalty clauses in the event of non-compliance by one of the parties, etc.

Similar to the promissory contract of sale and purchase in Portugal (CPCV), this promissory contract must also include the presential recognition of the signatures of the promissory parties.

If the owners interested in exchanging properties have taken out mortgages and these are encumbered with mortgages, they should inform the respective banks. This may also be an opportunity to renegotiate the financing conditions. In any case, the banks involved will have to be informed so that the mortgage can be cancelled if necessary or, alternatively, carry out the provisional registrations of the new mortgages.

Finally, the exchange is subject to the form required for the transmission of the property exchanged, which, in the case of real estate property, must be done by public deed or authenticated private document. If there is a difference in value between the properties exchanged, IMT (Property Transfer Tax) and Stamp Duty will have to be paid, the tax being payable by the party receiving the property of greater value.

What are the advantages of a house exchange?

The exchange of real estate in Portugal has several advantages depending on the specific case.

  • Inheritance shares / Co-ownership

In situations of joint ownership resulting from partitions where the heirs are left with the proportion of their shares in more than one property, the exchange of shares will allow both to acquire full ownership of the properties. For instance: two brothers who are co-owners of two properties in equal shares (50% / 50%) can exchange their shares so that each one becomes the sole owner of one of the properties.

  • Bank Financing

In an exchange, the purchase price is totally or partially paid by the delivery of a property, so there will be no need to ask for bank financing or, if there is, it will not be significant, something that can be an alternative for those who have difficulty in obtaining housing credit.

  • Non-payment or significant reduction of taxes

This happens both with Municipal Property Transfer Tax (IMT) and Stamp Duty.

IMT is the tax levied on transfers, for consideration, of the right of ownership or parts of this right, on real estate located in the national territory. As a general rule, it is the most expensive tax when purchasing real estate.

IMT varies according to the property's acquisition value or taxable patrimonial value, the type of dwelling (urban or rural), the purchaser's residence and purpose, with the applicable rate varying between 1% and 8%. This is the case, except if the purchaser has their tax residence in a country, territory or region subject to a more favourable tax regime, on the list approved by an Executive Order from the Minister of Finance or is an entity controlled, directly or indirectly, by an entity that is tax resident in a country, territory or region subject to a more favourable tax regime, on the list approved by an Executive Order from the Minister of Finance.

While in a contract of purchase and sale of property, IMT tax is calculated and applied based on the deed value or the patrimonial tributary value, (depending on which is higher), in the case of the exchange of property the IMT (and Stamp Duty) will only apply on the differential of the property exchanged.

For example, a property bought in continental Portugal, for permanent privately owned habitation for the price of 300,000 euros would be subject to the payment of an IMT tax of around 12,040 euros. If this same property is acquired by exchanging another property valued at 180,000 euros, being the difference 120,000 euros, the IMT to be paid would be 551,86 euros as it only applies to the price difference.

Ready to find the house of your dreams?

Ready to find the house of your dreams?

Find houses for sale and long term rentals on idealista