Taxing Times Ahead In Portugal?

These are uncertain times in Portugal, following a couple of months of political turmoil. Will the new Socialist government increase capital taxes?

These are uncertain times in Portugal, following a couple of months of political turmoil. This is the first time that Portugal has a left alliance government, and we need to see how this will pan out and affect expatriates living here.

The Socialist government has vowed to both ease austerity and abide by the Eurozone debt reduction rules – a very tough balancing act.

One way for governments to increase revenue is to increase taxes – as happened under the previous administration. The new government, however, has pledged to increase workers’ disposable income and has spoken about cutting taxes. In particular we expect the surtax imposed under austerity measures to be cut.

A solution would therefore be for the government to focus on tax rises on the wealthy, for example by increasing capital taxes.

We have seen this happen elsewhere. When socialist François Hollande came to power in France in 2012, his party implemented a number of tax rises on the wealthy. Fixed tax rates on investment income and capital gains were abolished so that they are now taxed at the income tax scale rates – resulting in higher taxes for higher earners. Surtaxes were added to capital gains on the sale of real estate.

In the UK, the Labour government introduced a new top rate of income tax of 50% in 2010, something which the following Coalition government then reduced to 45%.

Another way of raising more capital taxes would be to increase inheritance tax. Portugal’s “stamp duty” is relatively innocuous compared to countries like the UK, France and Spain. The government could potentially make changes here, for example by taxing large inheritances even where inherited by the immediate family, and making this apply to worldwide assets.

It may therefore become even more important for expatriates in Portugal to take steps to protect their wealth from tax.

While we do not know at this stage exactly what the new government will do, it is worth noting that there are legitimate tax efficient investment structures available which have largely been unaffected by changes brought in by European governments and these are definitely worth considering in Portugal. In spite of austerity measures and higher taxes over recent years, they have remained largely untouched and, even in France with all President Hollande’s tax reforms, they continue to provide significant tax benefits. They are also still available in the UK and tax efficient for UK nationals living in Portugal.

Both tax planning and estate planning have become more complex, especially if you have cross-border interests. The new automatic exchange of information regime makes it more important to ensure you only use arrangements that are compliant in Portugal and anywhere else you have assets or heirs. Seek professional, personalised advice.

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16th December 2015

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; an individual is advised to seek personalised advice.