It is extremely hard to track down whatever went to plan in 2020 until now due to the ongoing pandemic, including the new Portuguese Budget, implemented on April 1st.
The changes to the tax rates and rules were mostly kept the same in the new budget and the implemented changes were largely expected. The most significant change was the introduction of a 10% tax on pension income for incoming NHR residents. This also brings advantages to those already pursuing the NHR Portugal status.
What does the Portuguese tax scenario look like for UK nationals living in the country or thinking about relocating to Portugal?
Income tax:
Since 2018, all seven income tax rates have remained unchanged. However, there’s been an increase to the income thresholds, after it being static for almost 3 years.
Now, the lowest rate of 14.5% is imposed on income up to €7,112 (previously €7,091), with the highest rate of 48% rate applying to income over €80,822 (previously €80,641).
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Investment Income
Still like before, the interest and income on investments on shares, securities and bonds are taxed at a rate of 28%, although the residents now have an option to be taxed at the scale rates instead.
If the bank account or investment is deemed to be a “tax haven” by Portuguese authorities, then the income is taxed at a higher flat rate of 35%. This currently includes investments in Gibraltar, the Isle of Man and Jersey.
Portugal still offers attraction
Although less advantageous than zero tax, a 10% tax on foreign pension earnings is still lower than in many other countries, including the United Kingdom. Significant tax reductions of 14.5% to 48% are associated with the usual Portuguese income tax rates. And, of course, for your first ten years in Portugal NHR still offers the chance to get other forms of tax-free foreign income.
The good news is that you can still apply for and gain the NHR status under the previous rules if you have recently moved to Portugal (before April 2020) and comply with the NHR requirements. Anyone already benefiting from the NHR scheme before the April cut-off may continue to benefit from tax exemptions for the remainder of their 10-year period, as they have their benefits locked in.
Tax on property
Portugal's Adicional Imposto Municipal Sobre Imóveis (AIMI) continues to apply a tax to high-value Portuguese properties, wherever the owner is resident. The 2020 rates for properties held by companies remain at 0.4%, for individuals at 0.7% and 1% for those who own properties valued over €1 million.
Some companies are not eligible for this allowance, but a €600.000 allowance per person is tapped off from the value of all Portuguese properties. This means that if you own at least one Portuguese property with your partner, this house will only attract the AIMI if it’s worth over €1.2 million (€600.000 + €600.000).
If you’re looking for a nice place to live or spend your stay in Portugal, we can also help you find a house or property > here.
Capital gains tax
Residents being charged at the progressive income tax rates and non-residents at 28% remain unchanged. For Portuguese residents, only 50% of worldwide gains continue being liable. Since 2019, retired residents or residents older than 65 years can also be exempt from taxes when reinvesting gains from the main property into an eligible insurance contract or pension fund.
If you’re thinking about retiring in Portugal, learn more about the NHR Programme here.
Inheritance tax
Only Portuguese assets inherited or gifted outside of the direct family remain subject to the 10% stamp duty. However, remember that many UK expatriates are still residing in the UK, so check your position with regard to the UK inheritance tax.
Tax advantages even for those who are not qualified for the NHR Status
Portugal still offers tax appeals even to those not qualified for the NHR status. While UK pension income outside NHR attracts the usual income tax rates, investment tax treatment can be very favourable. If you live in Portugal, you should consider exploring your options for transferring and reinvesting UK pension funds into more tax-efficient arrangements. Doing this can also open up other advantages, such as investment choices, more options for withdrawal and currency flexibility
If you’re a non-EU citizen, you can also take advantage of the Portugal Golden Visa programme.
