You could enjoy a decade of generous tax breaks by moving to Portugal. The ‘non-habitual resident’ (NHR) scheme offers new residents special tax benefits for their first ten years. Besides offering a flat 20% income tax rate if you are employed in a ‘high value’ profession, you could receive foreign income – like pensions – tax-free and pay no Portuguese tax on gains from UK property.
This article was written exclusively for Expat Network by Jason Porter, Business Development Director at tax and wealth management advisors Blevins Franks.
You could benefit if you:
- have not been a tax resident in Portugal for the previous five years
- meet the terms of Portuguese residency – currently this includes spending more than 182 days a year or having your main home here
- register as a non-habitual resident with the Portuguese tax authorities
Although Brexit may eventually affect residency rules, tax treatment should stay the same as the UK/Portugal double tax treaty works independently of the EU. So even post-Brexit, Britons can continue to both apply and benefit from the NHR scheme.
Tax-free foreign income
If you are a non-habitual resident, most foreign-source income and gains are tax-free for the first ten years. This includes pensions, rental income, capital gains on real estate (but not shares), interest, dividends or any non-Portuguese employment income.
This applies only if the income is taxable in the country of origin, for example, under the UK/Portugal double tax treaty. Take UK dividends; they are not taxed in Portugal because under the treaty they are taxable in Britain. This applies even though in practice they may not actually be taxed in the UK.
Your UK-source pension income, on the other hand, is tax-free in the UK under the tax treaty (apart from government service pensions), and also tax-free in Portugal under non-habitual residency rules.
In these examples, you could end up paying no tax – in either country – on UK income.
Other tax benefits in Portugal
Even if you do not qualify for non-habitual residence, Portugal offers very attractive tax benefits for UK expatriates.
Portuguese taxes are relatively low and, unlike Spain or France, there is no wealth tax. Inheritance tax is also softer – it only affects Portuguese assets, does not apply to spouses and children and is 10% for others. Portugal also offers opportunities to enjoy extremely favourable tax treatment on your investments.
If you qualify for non-habitual residence, you could combine these structures with the regime rules. For example, you could sell a UK property or draw your pension tax-free in Portugal and reinvest elsewhere to take advantage of tax-efficient opportunities. Ultimately, the best course of action for you will depend on your individual circumstances and aims.
While the NHR scheme offers significant benefits, like any tax regime it is also highly complex. You should seek professional, personalised advice – covering both tax and financial planning for Portugal – for tailor-made recommendations to meet your objectives.
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
Jason Porter is Business Development Director at Blevins Franks – the leading international tax and wealth management advisers to UK nationals living in Europe. Contact Jason at firstname.lastname@example.org
You can find much more information on retiring to Portugal and other European destinations by going to www.retiringtoeurope.com There you can download the complete 276-page guide.