Now that the 2020 Portuguese Budget is in force, what has and hasn’t changed for income tax, wealth tax, inheritance tax and NHR rules?
How are UK expatriates taxed in Portugal? See Portuguese taxes for 2020 on income, investments, capital gains and wealth, plus the new NHR pensions tax.
It is difficult to find anything that went to plan in 2020 so far, and the Portuguese Budget was no exception. Usually confirmed in late December to take effect from January, this year’s delayed Budget only came into force on 1 April.
Fortunately, the new Budget generally kept tax rates and rules the same, and what did change was largely expected. This included the introduction of a 10% tax on pension income for new non-habitual residents.
So what does the current Portuguese tax landscape look like for UK nationals living in or thinking about moving to Portugal?
Portuguese income tax
All seven income tax rates remain the same and have been unchanged since 2018. However, after being static for three years, there has been a slight increase to the income thresholds. Now the lowest rate of 14.5% starts being levied on income up to €7,112 (previously €7,091), with the highest 48% rate applying to income over €80,822 (previously €80,641).
|2019 INCOME €
(up to 30 Mar 2020)
|2020 INCOME €
(from 1 Apr 2020)
| 0 – 7,091
||0 – 7,112
| 7,092 – 10,700
||7,112 – 10,732
| 10,701 – 20,261
||10,732 – 20,322
| 20,262 – 25,000
||20,322 – 25,075
| 25,001 – 36,856
||25,075 – 36,967
| 36,857 – 80,640
||36,967 – 80,822
Portuguese tax on investment income
As before, interest and income on investments (such as shares, securities and bonds) are taxed at a flat rate of 28%, although residents can choose to be taxed at the scale rates instead.
If the bank account or investment is in a jurisdiction deemed to be a ‘tax haven’ by Portuguese authorities, income is taxed at a higher rate of 35%. This currently includes investments in Gibraltar, the Isle of Man and Jersey.
Non-habitual residency (NHR)
Portugal’s NHR regime remains in place, continuing to provide new residents with highly attractive tax benefits for their first ten years here. However, 2020 has brought one key change.
Previously, Britons with non-habitual residency could receive most UK pension income tax-free, but now there is a flat 10% tax for those who acquire Portuguese residence after 31 March 2020. This applies to all non-Portuguese pension income and withdrawals, including lump sums.
While 10% is clearly not as beneficial as 0%, this still offers a lower tax liability than usual for accessing pension funds, for example, when compared to the UK.
If you recently moved to Portugal (before April 2020) and meet NHR requirements, the good news is that you can still apply for and acquire NHR status under the previous rules. Anyone already benefiting from the NHR regime before the April cut-off has their benefits locked in, so can continue to enjoy tax exemptions for foreign pensions for the remainder of their ten-year period.
Under NHR, most foreign income, certain capital gains, interest and dividends can be taken tax-free in Portugal. Key exceptions are UK government service pensions and rental income, which remain taxable in the UK. Non-habitual residents employed or self-employed in Portugal in certain ‘high added value’ professions can also benefit from a flat 20% income tax rate.
See more about the advantages of NHR in Portugal
Wealth tax in Portugal
Portugal’s Adicional Imposto Municipal Sobre Imóveis (AIMI) continues to apply a wealth tax of sorts to high-value Portuguese property, wherever the owner is resident. For 2020, rates remain at 0.4% for properties held by companies, 0.7% for individuals and 1% for those owning property valued over €1 million.
A €600,000 allowance per person is deducted from the value of all Portuguese properties. So if you and your partner jointly own one Portuguese home, the property will only attract AIMI if it is worth over €1.2 million, and then only on the value above this. Some companies are not eligible for the allowance.
Capital gains tax in Portugal
All rates and rules remain the same – residents are charged at the progressive income tax rates and non-residents at 28%. Only 50% of worldwide gains continues to be liable for Portuguese residents, with a main home exemption within the EU/EEA. Since 2019, residents aged 65+ or retired can also be exempt when reinvesting gain from a main home into an eligible insurance contract or pension fund within six months.
See more about Portuguese capital gains tax
Portuguese inheritance tax (‘stamp duty’)
Again, nothing new here. Portugal’s 10% stamp duty continues to apply only on Portuguese assets inherited or gifted outside of the direct family. Remember, however, that many UK expatriates continue to remain UK-domiciled, so take care to review your position regarding UK inheritance tax.
Tax planning for Portugal
While not much has changed overall, the Portuguese government has announced that there will be at least one more Budget for 2020 to make provision for the economic consequences of coronavirus.
In any case, it is sensible to regularly review your financial planning to ensure your assets and investments are structured in the most suitable way for your family’s circumstances and goals. And don’t forget there are just a few months until full Brexit is set to take effect, so make sure you prepare accordingly by securing Portuguese residence and reviewing UK assets. Portugal offers many tax-efficient opportunities for residents, so take personalised, cross-border advice for the best results.
Contact a Portugal-based adviser
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.