Portuguese tax returns for 2018 income are due by 30 June. Find out the tax rates and what to declare for UK pensions, investments and capital gains.
The deadline for submitting Portuguese income tax returns is 30 June. This is the final date for declaring all income from the 2018 tax year, including pensions, capital gains and rental income.
As always, Portugal residents must take care to include all worldwide income as required by Portuguese law. With today’s global tax scrutiny and a new Portuguese bill providing transparency on residents’ high-value accounts, it is now more important than ever to get this right.
So what do you need to declare and what kind of tax bill can you expect?
Tax rates in Portugal
There are seven income tax bands in Portugal for 2018 (these continue to apply for 2019). Tax starts at 14.5% on annual income up to €7,091, with the 48% top rate applying to income over €80,641.
| 0 – 7,091
| 7,092 – 10,700
| 10,701 – 20,261
| 20,262 – 25,000
| 25,001 – 36,856
| 36,857 – 80,640
An additional ‘solidarity tax’ of 2.5% applies on income between €80,000 and €250,000; 5% on income over €250,000.
Investment income, including interest, shares, securities and bonds, attracts a flat rate of 28%, but residents can choose to be taxed at the scale rates instead. The rate is fixed at 35% for income deemed to be from a ‘tax haven’, such as Jersey, Gibraltar and the Isle of Man.
Capital gains on property are taxable at the income tax rates, but residents qualify for exemptions and 50% relief after two-years’ ownership. See more about capital gains taxes in Portugal
Download our guide to taxes in Portugal
Taxes for non-habitual residents (NHR)
Those who qualify for this special regime and work in a recognised ‘high value’ profession in Portugal attract a fixed 20% rate on employment income. Non-habitual residents also receive most foreign-source pension income, rental income, interest, dividends and capital gains on real estate tax-free.
Read more on the advantages of Portugal’s non-habitual resident regime
UK and foreign-source income
If you are Portuguese resident, you must declare all UK and other foreign income in Portugal, even if you pay tax in the source country or no tax is payable at all under NHR.
UK income that does not attract Portuguese taxation – but must still be declared here – includes UK government service pensions and rental income. Under NHR, UK real estate gains are taxed only in the UK; for other residents, gains are liable in both countries. While the UK/Portugal tax treaty allows for a credit in this case, it will be for the lower amount.
Conversely, UK pensions and investment income such as bank interest, dividends, ISAs and Premium Bond winnings are taxable only in Portugal for residents here. With the exception of gains on the sale of UK shares, some of these can usually be received tax-free under the NHR regime.
Generally, all worldwide income will be considered when calculating your overall tax liability in Portugal, which could push you into a higher income tax bracket.
While, by default, taxpayers will be assessed as individuals, couples who are resident in Portugal and married or living together for at least two years can choose to file joint returns. In this case, combined income would be divided by two with the relevant tax rate applied to the half-share. This tax liability is then doubled to determine the total income tax payable. Where one partner is earning a much higher income than the other, this can prove a tax-efficient approach.
Where one spouse is resident in Portugal and the other is not, separate returns will need to be filed. The resident spouse should report their worldwide income on their Portuguese tax return, with the non-resident only reporting income arising in Portugal.
Payment of tax owed
Final payment of your Portuguese tax bill is due within 30 days of the date on the assessment issued by the tax office.
However, if your income is taxable in Portugal and another country and is eligible for double tax relief – such as with gains on UK real estate – a longer deadline is possible. Where the other state has not yet assessed the final tax liability, payment can be delayed until 31 December.
Global tax scrutiny
Thanks to the ‘Common Reporting Standard’, where hundreds of countries are sharing taxpayer information, Portuguese tax authorities now automatically receive data on taxpayers’ overseas assets and income. Some countries, including Spain and France, have already started following up undeclared foreign income from British nationals, so it is likely that Portugal will follow suit.
Read how HMRC is benefiting from the global exchange of information
As well as the automatic exchange of information, Portugal has just approved a new tax avoidance bill obliging banks to inform the tax office of any accounts valued over €50,000, so transparency has never been greater.
Remember: failing to submit returns on time or provide accurate declarations can result in severe penalties so it is crucial to get it right.
Cross-border taxation is highly complex, so take specialist advice to avoid getting it wrong or paying more than you have to. For help completing your tax return, speak to a tax accountant. For advice on effective tax planning in Portugal, speak to a cross-border tax and wealth management specialist. They can help you enjoy favourable tax treatment while offering peace of mind that you are meeting your tax obligations, here and in the UK.
Contact Blevins Franks for a tax planning review
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.