Taxes in Portugal are much kinder than in some other parts of Europe and a big incentive to UK nationals who are looking to retire abroad.
Here, we provide a summary of taxation in Portugal – and the tax benefits it offers – for those who are thinking of moving here or are already enjoying living here in Madeira.
One of the more tax-attractive incentives to move to Portugal is the non-habitual residence (NHR) regime. If you have not been a resident here 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 allows you to take most of your foreign income, certain capital gains, interest, and dividends tax-free for your first ten years in Portugal. UK government service pensions and rental income will remain taxable in the UK. Residents employed in ‘high added value’ professions will also benefit from a flat income tax rate of 20%.
Note that since 2020, for new applicants, the NHR regime levies a flat 10% tax on foreign pension income, including lump sum withdrawals – however, this still compares very favourably to the usual income tax rates, particularly for higher incomes.
Portuguese income taxes
If you are a resident in Portugal, your worldwide employment earnings, pension, rental, and most other income is calculated across the whole year for your tax bill. For non-residents, only income sourced from Portugal will be taxable here.
There are nine income bands for 2022, ranging from 14.5% for income up to €7,116 to 45% for income over €48,033.
A key exception is investment income, such as interest, shares, securities and bonds, which attracts a flat rate of 28%. Portuguese residents can opt to pay tax at the scale rates instead if that works out cheaper for you.
This 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 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 above, if your income exceeds €75,009 in the year, including these capital gains. Thankfully, this particular rule will not be introduced until 1st January 2023.
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).
Life insurance policies will not specifically be affected by these new measures, as you have the option to elect for a flat 28% tax on withdrawals.
The tax rules on capital gains are pretty generous for Portuguese residents. Only half the revenue from the sale of real estate is liable to tax, and you receive inflation relief after owning the property two years. There are some exemptions, so it is worth seeking financial advice from a tax specialist.
There is no capital gains tax on precious metals or digital currencies. However, a series of transactions may suggest that a seller is actively trading, causing the tax authority to challenge.
A wealth tax on high-value property in Portugal
Portugal’s Adicional Imposto Municipal Sobre Imóveis (AIMI) continues to apply to high-value property in Portugal. You are only liable for this tax if your stake in the property is above €600,000 and are only taxed on any amount above this figure.
Inheritance and gift tax
Inheritance tax in Portugal only applies to property and assets inherited or gifted outside the direct family, at a fixed 10%. This is another tax benefit of living in Portugal, though UK nationals may well remain liable to UK inheritance tax.
Ideally, you should seek specialist tax planning advice before moving to Portugal to ensure you are fully aware of all opportunities available to you. However, even if you have already made Portugal your home, taking advice and regularly reviewing your financial planning will ensure everything is optimised for your goals and family’s long-term security.
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.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.