What will be the tax benefits of living in Portugal after non-habitual residency (NHR) ends? In this article, we take a look at some important considerations for those planning to move or who already live in Portugal, tackling some commonly asked questions surrounding the end of NHR.
As we bid farewell to 2023 we also say adeus to Portugal’s popular non-habitual residence regime. You don’t need to worry if you already have NHR status as this only impacts new residents. And, the closing date is extended by a year for those who can prove they began the residence application process in 2023.
Portugal budget approved
The Portuguese government has approved its budget for 2024 on 29 November 2023.
Other than confirming that the non-habitual residence regime is closed for new entrants, there were no significant changes to the tax regime. The income tax bands have been increased and all the other attractions about living in Portugal remain.
Continuing benefits of living in Portugal
While some people will choose to live in a particular country purely for tax purposes, for many of us lifestyle comes first. The most important thing is to find the country that appeals to you, then take specialist advice to fully understand the local tax regime and establish how you could use it to legitimately reduce your tax liabilities – with careful planning, you may find your tax burden is considerably lower than initially expected. You can then focus on enjoying the lifestyle you sought.
For example, investment income can be taxed very efficiently in Portugal, with some arrangements offering beneficial tax treatment. Only high-value properties located within Portugal are subject to its equivalent of wealth tax, so tax could be avoided.
When it comes to estate planning, Portugal abolished ‘inheritance tax’ back in 2004. That said, transfers on death and lifetime gifts are subject to 10% ‘stamp duty’ – but your spouse, children, grandchildren, and parents are exempt. And for any other heirs, it only applies to Portuguese assets.
And of course, there are so many other benefits to living in Portugal – the easy lifestyle, weather, food, and culture. And the stunning scenery, from the impressive Algarve coastline to the historic charms and vibrancy of Lisbon and Porto, to off-the-beaten-track rural areas – there is a home to suit everyone.
Portugal Income tax rates for 2024
The income tax bands have increased in line with inflation, which means you can earn a little more before hitting the next tax bracket. The tax rates for the first five income bands were also reduced, to help lower and middle earners.
For example, while income from €11,284 to €15,992 was taxed at 26.5% in 2023, in 2024 it is 23% for income from €11,623 to €16,472. The top rate remains 48%, now for income over €81,199.
To give an idea of how this will affect your tax bill, someone earning €20,000 will pay €790 less tax next year, while anyone earning €70,000 will save €527.
The personal income tax rates for 2024 are:
|Up to €7,703
|€7,703 to €11,623
Non-habitual residence (NHR) comes to an end for new residents
Portugal’s NHR regime has been very popular since its introduction in 2010, enticing many people to move there. While some considered it a temporary home, others found living there suited them so much they opted to stay even when their 10 years of tax breaks were up.
Portugal was a popular choice for expatriates long before the NHR was envisaged and continues to be an attractive place to live, both for the lifestyle and tax benefits.
But the non-habitual residence programme and its tax advantages ceases to exist as we know it from 31 December 2023.
Anyone who already has NHR status is not affected – you will continue to receive the tax benefits until your 10-year period is up, the same as it was before. If you only applied in 2023, you still have another nine years.
And, in a welcome move, it was confirmed that anyone who began the process of moving to Portugal in 2023 can apply for NHR status until the end of 2024.
There are strict conditions for qualifying for this grace period. You must have initiated your visa application before 31 December 2023 and either secured a promise of employment, or signed a property purchase or rental agreement, or enrolled your children into a local school for the 2024/25 scholastic year. This extends to other members of your household.
Replacement regime for skilled professionals
The NHR will be replaced by a new regime, but this is focused on employment and does not benefit retired people.
It aims to attract foreign talent and investment to Portugal and applies to people who are employed/self-employed in roles such as higher education teachers, scientific research, technology, and startups. As before, you cannot have been resident in Portugal in the preceding five years and your status will last ten years.
If you qualify, you will benefit from a 20% flat tax rate on employment/self-employment income, and an exemption for foreign income, such as employment income, rent, dividends etc.
Tax and financial planning for Portugal
While these changes emphasise the need for professional advice to benefit fully from all of Portugal’s tax advantages, the attraction to live there remains as strong as ever.
If you are retired or approaching retirement, taking a long-term view will pay dividends. Legitimate tax planning, wealth management, and succession planning should be based on sound legal and tax principles and not rely on short-term tax breaks and incentives.
Consider how long you expect to live in Portugal, where your assets are, and also where your heirs will live. Then, take specialist cross-border advice on setting up a strategic financial plan to suit your circumstances, needs, objectives, time horizon, and estate planning wishes.
Blevins Franks has been advising clients on Portuguese tax planning for over 25 years and expects to have offices in Portugal for many years to come.
The taxation system has evolved considerably in that time, sometimes for the better, sometimes less so, but the attraction of retiring to Portugal has been constant. There will be more changes in the future, as with all countries, but with long-established advisers living locally and a team of tax experts, we’re adept at adjusting to change and protecting our client’s long-term interests.
Contact Blevins Franks today.