Has 2018 brought any changes to taxes on income, capital gains, wealth, investments and trusts or non-habitual residence rules in Portugal?
As we move into a new year, let us have a look at the tax landscape in Portugal. Has 2018 brought any changes to taxes on income, capital gains, wealth, investments and trusts or non-habitual residence rules?
While 2017 saw the introduction of a so-called ‘wealth tax’ on property, there are no major changes this year. The Portuguese parliament approved the state budget for 2018 in early in December, and it was officially announced by the President on 22nd December. Changes came into effect on 1st January 2018.
Income tax and surcharges
The minimum and maximum income tax rates remain the same as last year (indeed, they have been unchanged since 2013), but two new income tax bands have been introduced. Tax now starts being levied on income over €7,091 (previously €7,000) and the 48% top rate applies to income over €80,641 (previously €80,000).
| 0 – 7,091
| 7,092 – 10,700
| 10,701 – 20,261
| 20,262 – 25,000
| 25,001 – 36,856
| 36,857 – 80,640
We finally see the end of the two extra taxes that were introduced under austerity measures. The surtax was phased out last year.
As previously, interest and investment income is taxed at a flat rate of 28%. If you are resident here you can choose to be taxed at the scale rates above instead, if this more beneficial.
Note that if the bank account or investment is in a jurisdiction on Portugal’s list of ‘tax havens’, income is taxed at a higher rate of 35%. Gibraltar remains on this blacklist. The Isle of Man, Jersey and Uruguay were removed in 2017, but have been reinstated as the procedure that removed them did not follow the correct legal procedure.
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Non-Habitual Residents (NHR) regime
Portugal’s NHR regime remains in place – with no changes – providing new residents with very attractive tax benefits for their first ten years.
Following comments from the Portuguese Finance Minister in September 2017, it was widely speculated that the tax benefits could be watered-down for expatriates settling in Portugal. In particular, many expected a 5-10% tax would start to be applied to foreign pension income.
There was no mention of this of other NHR reforms in the 2018 budget, so Britons with non-habitual residency can continue to receive most UK pension income without attracting tax for their first ten years in Portugal. Rental income, certain capital gains, interest and dividends can also be exempt, with any UK tax deducted reclaimable. The key exceptions are UK government service pensions and UK rental income, which always remain taxable in the UK.
See more about tax-free pensions in Portugal under NHR
Introduced in 2017, the Adicional Imposto Municipal Sobre Imóveis (AIMI) affects those with higher valued Portuguese property. Regardless of residency, rates are 0.4% for properties held by companies, 0.7% for individuals and 1% for those owning property valued over €1 million.
Relief comes via a €600,000 allowance per person, 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. Alternatively, someone owning three properties worth €500,000 would be liable for tax on €900,000 – the combined value minus the allowance.
The €600,000 allowance is available for individuals and estates, except for those whose tax affairs are not in order. Some companies are not eligible.
There are no changes to this tax in 2018, other than the ability to be taxed on a joint basis.
Capital gains tax
With effect from 1st January 2018, non-residents who own shares in a non-trading company that owns Portuguese real estate will be subject to capital gains tax when they dispose of the shares.
There are no changes this year to the tax treatment of trusts in Portugal. Since January 2015, Portugal taxes distributions from fiduciary structures such as trusts and foundations made to individuals resident in Portugal.
There can still be good value in a trust – they remain very effective for estate planning purposes. However, if and how you should use a trust, and how you combine it with investment arrangements for an income and gains perspective, depends on your specific circumstances and objectives.
Your estate planning, tax planning and investment planning should be considered together. You should have a tax informed investment strategy, based on a thorough understanding of the tax landscape. Look to protect your wealth for the long-term, for yourself and your family. There are many opportunities available to residents of Portugal to help you do just that, if you take specialist and personalised advice.
Check your finances are in shape for 2018 in Portugal
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.