Tax in Portugal 2024: What you need to know

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27.02.24
Tax in Portugal

What does tax in Portugal look like for UK nationals living in or thinking about moving there?   Those arriving from this year onwards will no longer benefit from the non-habitual residence (NHR) regime, but has anything else changed?  Is Portugal still an attractive place to live from a tax point of view?

The Portugal 2024 budget introduced one significant tax reform for 2024 – the popular non-habitual residence programme has closed for new applicants. Otherwise, Portuguese taxation remains similar to recent years, as follows.

Portugal income tax

For residents of Portugal, worldwide employment earnings, pension, rental and most other income earned over the year is added together to calculate your income tax bill. For non-Portuguese residents, only income sourced from Portugal is taxable here.

The scale rates of income tax were amended for 2024.  The rates for the first five income bands were reduced and income bands were increased in line with inflation.

The personal income tax rates for 2024 are:

INCOME TAX RATE
Up to €7,70313.25%
€7,703 – €11,62318%
€11,623 – €16,472 23%
€16,472 – €21,321 26%
€21,321 – €27,146 32.75%
€27,146 – €39,791 37%
€39,791 – €51,997 43.5%
€51,997 – €81,199 45%
Over €81,19948%

Investment income

Investment income continues to be taxed at a flat rate of 28%.  This covers interest and income from capital investments such as shares, securities and bonds.

Residents of Portugal have the option to pay tax at the scale rates instead, if that works out cheaper for you.

If a bank account or investment is within a jurisdiction classed as a ‘tax haven’ by Portuguese authorities, income is taxed at a higher rate of 35%. This includes Gibraltar and Guernsey.

Capital gains tax in Portugal

If you are a Portuguese resident and sell property anywhere in the world, 50% of the gain is added to your annual income and taxed at the relevant income tax rate. Crucially, however, you won’t be taxed if you sell a main home and reinvest the proceeds to buy a new main home in Portugal or elsewhere in the EU/EEA.

Retirees or residents aged over 65 can also avoid Portuguese capital gains tax when reinvesting into an eligible insurance contract or pension fund – great news for downsizers. You must do this within six months of sale to qualify. Life assurance policies – where you can hold a wide range of investment assets within its tax-efficient structure – are eligible for this relief.

The only recent change here affects non-residents who own Portuguese property.  Whereas previously they were taxed on 100% of the gain at 28%, now only 50% is taxed and at the scale rates – the same treatment as residents.

Gains made on the disposal of shares, securities and bonds are taxed as investment income, as above.

Non-habitual residence (NHR)

The non-habitual residence programme closed on 31 December 2023 and you can no longer apply for it.  The only exception is those who can prove they initiated their residence visa application in 2023 and secured a property, employment or school places last year.

If you already have NHR status, you continue to receive the tax advantages until the end of your 10-year term.   You then become liable to Portuguese tax on your worldwide income and gains at the full rates, facing income tax rates up to 48% or 28% on investment income.  50% of any property gain will be taxable.

Take advantage of your NHR benefits and restructure your assets now to vastly improve your post-NHR tax bill.  Don’t wait until you’re coming to the end of your NHR term, start planning years in advance. Allow plenty of time to restructure your assets for the most tax-efficient transfer out of NHR possible – whether you stay in Portugal or move to pastures new.  With specialist cross-border advice and careful planning, the Portuguese tax regime provides compliant opportunities to enjoy extremely favourable tax treatment on capital investments.  There can also be very attractive tax options for residents in a position to encash their pension, making it comparable to NHR benefits.

If you currently have NHR status, contact us to find out how much tax we could save you in future.

Tax regime for skilled professionals

In place of the NHR, this new regime only applies to individuals who are employed/self-employed in roles such as higher education teachers, scientific research, technology and startups. 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.

High value property

Introduced in 2017, Portugal’s Adicional Imposto Municipal Sobre Imóveis (AIMI) applies a limited form of wealth tax to high-value Portuguese property. This is regardless of residence, but you are only liable if your stake in Portuguese properties is over €600,000, and then only on the value above that. If you and your partner jointly own a Portuguese home, the property will only attract AIMI if it is valued over €1.2 million. Rates are 0.7% for individuals, 0.4% for companies, 1% for properties over €1 million, and 1.5% for the value in excess of €2 million. Most companies are not eligible for the allowance.

Stamp duty on inheritances

Stamp duty, Portugal’s version of inheritance tax, compares very favourably to neighbouring countries and the UK.  The rate is fixed at 10% and only applies on Portuguese property and assets inherited or gifted outside of the direct family.

Beware, however, that unless you take action Portugal’s ‘forced heirship’ succession law will automatically pass portions of your estate according to your bloodline, regardless of your written wishes.

Also, remember that many UK expatriates continue to remain UK-domiciled, so take care to review your position regarding UK inheritance tax.

Learn more about tax planning in Portugal by downloading our free 2024 guide.

Tax planning for Portugal

In summary, Portugal remains a tax-friendly country to live in, but specialist advice is more essential than ever before to ensure you make the most of the local regime.

It is sensible to regularly review your financial planning to ensure everything is optimised for your family’s circumstances and goals. The way you structure your assets and wealth can make a big difference to your tax bill, so take personalised advice with Blevins Franks to make the most of tax-efficient opportunities and secure financial peace of mind in Portugal. We have been helping expatriates with financial planning in Portugal for decades, and our advisers live locally. They have intimate knowledge and understanding of the challenges expatriates face and will help to make your move to Portugal as tax-efficient as possible.

Contact Blevins Franks today.

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.

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