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Living in Portugal after NHR
By Stephen Rankine, Private Client Manager, Blevins Franks
When we said farewell to 2023 we also said adeus to Portugal’s popular non-habitual residence regime. You don’t need to worry if you already have NHR status as this only impacts new residents. And the closing date is extended by a year for those who can prove they began the residence application process in 2023.
Portugal budget 2024
Other than confirming that the non-habitual residence regime is closed for new entrants, the budget did not include any other significant changes to the tax regime. The income tax bands have been increased and all the other attractions about living in Portugal remain.
Continuing benefits of living in Portugal
While some people will choose to live in a particular country purely for tax purposes, for many of us lifestyle comes first. The most important thing is to find the country that appeals to you, then take specialist advice to fully understand the local tax regime and establish how you could use it to legitimately reduce your tax liabilities – with careful planning you may find your tax burden is considerably lower than initially expected. You can then focus on enjoying the lifestyle you sought.
For example, investment income can be taxed very efficiently here in Portugal, with some arrangements offering beneficial tax treatment. Only high value properties located within Portugal are subject to its equivalent of wealth tax, so tax could be avoided.
When it comes to estate planning, Portugal abolished ‘inheritance tax’ back in 2004. That said, transfers on death and lifetime gifts are subject to 10% ‘stamp duty’ – but your spouse, children, grandchildren and parents are exempt. And for any other heirs it only applies to Portuguese assets.
And of course, there are so many other benefits to living here in Portugal – the easy lifestyle, weather, food and culture. And the stunning scenery, from the impressive Algarve coastline to the historic charms and vibrancy of Lisbon and Porto, to off-the-beaten-track rural areas – there is a home to suit everyone.
Portugal Income tax rates for 2024
The income tax bands have increased in line with inflation, which means you can earn a little more before hitting the next tax bracket. The tax rates for the first five income bands were also reduced, to help lower and middle earners.
For example, while income from €11,284 to €15,992 was taxed at 26.5% in 2023, in 2024 it is 23% for income from €11,623 to €16,472. The top rate remains 48%, now for income over €81,199.
To give an idea of how this will affect your tax bill, someone earning €20,000 will pay €790 less tax next year, while anyone earning €70,000 will save €527.
Non-habitual residence (NHR) comes to an end for new residents
Portugal’s NHR regime has been very popular since its introduction in 2010, enticing many people to move here. While some considered it a temporary home, others found living here suited them so much they opted to stay even when their 10 years of tax breaks were up.
Portugal was a popular choice for expatriates long before the NHR was envisaged and continues to be an attractive place to live, both for the lifestyle and tax benefits.
But the non-habitual residence programme and its tax advantages ceases to exist as we know it from 31 December 2023.
Anyone who already has NHR status is not affected – you will continue to receive the tax benefits until your 10-year period is up, the same as it was before. If you only applied in 2023, you still have another nine years.
And, in a welcome move, it was confirmed that anyone who began the process of moving to Portugal in 2023 can apply for NHR status until the end of 2024.
There are strict conditions for qualifying for this grace period. You must have initiated your visa application before 31 December 2023 and either secured a promise of employment, or signed a property purchase or rental agreement, or enrolled your children into a local school for the 2024/25 scholastic year. This extends to other members of your household.
Replacement regime for skilled professionals
The NHR will be replaced by a new regime, but this is focused on employment and does not benefit retired people.
It aims to attract foreign talent and investment to Portugal and applies to people who are employed/self-employed in roles such as higher education teachers, scientific research, technology and startups. As before, 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.
Tax and financial planning for Portugal
While these changes emphasis the need for professional advice in order to benefit fully from all Portugal’s tax advantages, the attraction to live here remains as strong as ever.
If you are retired or approaching retirement, taking a long-term view will pay dividends. Legitimate tax planning, wealth management and succession planning should be based on sound legal and tax principles and not rely on short-term tax breaks and incentives.
Consider how long you expect to live in Portugal, where your assets are and also where your heirs live. Then take specialist cross-border advice on setting up a strategic financial plan to suit your circumstances, needs, objectives, time-horizon and estate planning wishes.
Blevins Franks has been advising clients on Portuguese tax planning for over 25 years and expect to have offices in Portugal for many years to come. The taxation system has evolved considerably in that time, sometimes for the better, sometimes less so, but the attraction of retiring to Portugal has been constant. There will be more changes in the future, as with all countries, but with long established advisers living locally and a team of tax experts, Blevins Franks is adept at adjusting to change and protecting our clients’ long-term interests.
The 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 should take 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.
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