Retiring to Europe, Part Three: Portugal
Date Posted:Wed, 16th Nov 2022
Taxes in Portugal are much kinder than in some other parts of Europe and a big incentive to UK nationals from the Gulf who are looking to retire abroad. By BBG Dubai member Jason Porter
Here, we provide a summary of taxation in Portugal – and the tax benefits it offers – for those who are thinking of moving there.
By far, one of the more tax-attractive incentives to make a move to Portugal is the non-habitual residence (NHR) regime. If you have not been a resident of Portugal in the last five years, you can apply for NHR at your local tax office and receive an entire decade of tax relief.
Being registered as a non-habitual resident will allow you to take most of your foreign income, certain capital gains, interest and dividends tax-free, as well as pay only 10% income tax on most forms of pension income for the first ten years you are living here.
Portuguese income taxes
Outside of the NHR regime, the income tax you are liable for very much depends on your residence status. If you are a resident in Portugal, worldwide employment earnings, pension, rental and most other income will be calculated across the whole year for your tax bill. For non-residents of Portugal, only income sourced from Portugal will be taxable there.
The income tax scale rates range from 14.5% to 48%, across nine income bands.
A key exception is investment income, such as interest, shares, securities and bonds, which attract a flat rate of 28%. Portuguese residents can opt to pay tax at the scale rates instead if that works out cheaper for you.
The rate increases to 35% if the bank account or investment is within a jurisdiction classed as a ‘tax haven’.
Taxes on capital gains in Portugal
One key change introduced as part of the 2022 budget is that, with effect from January 2023, short-term capital gains (i.e. gains derived from assets held for less than one year) will be taxable as income. They will be added to your other income for the year and taxed at the scale rates, if your income exceeds €75,009 in the year, including these capital gains.
This also applies to gains from tax havens, increasing the rate from 35% to 48% (or up to 53% if the income is over €250,000).
Single premium life insurance policies (which invest in stocks, shares and funds) will not specifically be affected by these new measures, as you have the option to elect for a flat 28% tax on your withdrawals.
The tax rules on capital gains are pretty generous for Portuguese residents. Only half of the revenue from the sale of real estate is liable to tax, and you will receive inflation relief on the cost after owning the property for two years.
Wealth tax on high-value property in Portugal
Portugal’s Adicional Imposto Municipal Sobre Imóveis (AIMI) – effectively a form of real estate wealth tax - continues to apply to high-value property in Portugal. However, you will only be liable for this tax if your share of the property is above the value of €600,000, when the tax is 0.7% pa above this figure, 1% between €1m and €2m, and 1.5% over €2m.
Inheritance and gift tax
While there are no Portuguese estate taxes comparable to those in the UK and the rest of the EU, there is a tax commonly known as Stamp Duty, which applies mainly to the value of real estate inherited or gifted outside the direct family and remains fixed at 10%. While much lower than rates in most other jurisdictions, UK nationals should note they may very well remain liable to UK inheritance tax if they retain their UK domicile status.
Jason Porter is a Director of specialist expat financial advisers Blevins Franks and head of the company’s European Emigration Advisory Service.