Like many other countries, Portugal imposes a capital gains tax, but it only applies to gains made on real estate and investments. Personal items are not taxable, and assets being gifted or passed on death are subject to stamp duty instead (with exemptions for close family and non-Portuguese assets).
Your capital gains tax liabilities in Portugal depend on whether you are resident, non-resident or approved under the Non-Habitual Residents (NHR) regime.
If you are resident in Portugal, you are liable to tax on gains made on worldwide property and shares (if acquired from January 1989 onwards).
Only 50% of the gain is liable to tax for residents. Inflation relief is available after two years. The gains are added to your other income for the year and taxed at the income tax scale rates, up to 48% in 2018.
If the property was your main home and all proceeds are reinvested in another main home in Portugal or the EU/European Economic Area (where there is tax information exchange treaty in place) within 36 months after the sale or 24 months before, the gain is exempt. You have to live in the new property within six months of the end of the three-year limit. This could affect British expatriates returning to the UK after Brexit.
If you own residential property in the UK, you are also liable to tax there even though you are not UK resident. The net gain arising after April 6, 2015 is added to any other UK-source gains and taxed at 18% or 28% (depending on your UK tax bracket) with a £11,700 allowance in 2018/19). Under the UK/Portugal double tax treaty, a credit will be given for the UK tax paid, although you will pay whichever amount is the larger. Such gains may be exempt in the UK if you meet the conditions for private residence relief.
Shares, securities and bonds are taxed at a flat rate of 28%. This also applies to mixed or closed (private subscription) funds. Gains on shares in a blacklisted jurisdiction are taxed at 35%. Capital gains on UK shares are only taxed in the country of residence, so in Portugal in this case.
There are ways to reduce your tax liability depending on how the gains on your assets are calculated, but you should take advice from an expert in tax on how this works.
Under the NHR scheme, a gain is exempt in Portugal if it may be taxed (under tax treaty rules) in the country of source.
This means that gains made on the sale of UK shares are not exempt for NHR residents, since the UK/Portugal treaty says they are only taxed in the country of residence.
In contrast, gains made on immovable property are taxed in the country where the property is located. Since the UK has taxation rights, UK real estate gains are exempt from Portuguese tax under the NHR regime. The gains are ‘exempt with progression’, however, so are added to your overall taxable income and tax is deducted from the overall liability. Effectively, this means the tax rate on any income or gains directly taxable in Portugal may be increased.
Non-resident individuals pay tax on 100% of the gain from the sale of a property in Portugal at 28%. Non-resident companies are subject to local corporation tax at 21% plus municipal surcharges.
EU residents, and residents of an EEA country which has a tax treaty with Portugal, may choose to be taxed as a Portugal resident. Note, however, that you will have to declare your worldwide income to calculate the marginal rate of tax applicable to the gain.
For UK residents, the gain would also be taxable in the UK, but tax paid in Portugal can be credited against that due in the UK.
Investments held within a life insurance policy in Portugal are not liable to capital gains tax, but you will be taxed on the gain element of any withdrawal or if you cash it in. You do not have to pay tax on the proceeds if you sell or assign the policy. In fact, certain types of policies can offer significant tax benefits in Portugal. Speak to a specialist wealth manager about which ones may help you and how.
A good adviser will help you find tax-efficient, compliant ways of managing your assets so that you do not pay more tax than you need to – there can be capital gains tax advantages to living in Portugal. Always seek professional guidance before making any changes to your investments and tax planning.
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 is advised to seek personalised advice.
By Dan Henderson
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Dan Henderson, Partner of Blevins Franks, is a highly experienced financial adviser, specialising in retirement, investment and succession planning. He holds the Diploma for Financial Advisers and advanced CII qualifications in pensions and investment planning.