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Photo: MATHIAS WICHMANN/UNSPLASH

Portugal taxation in 2024

As we bid farewell to 2023, we also say 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 approved

The Portuguese government approved its budget for 2024 on November 29.

Other than confirming that the non-habitual residence regime is closed for new entrants, there were no significant tax changes. The income tax bands have been increased and all the other attractions about living in Portugal remain.

Continuing benefits of Portugal

While some people will choose to live in a particular country purely for tax purposes, for many of us lifestyle comes first. Find the country that appeals to you, then take specialist advice to understand the tax regime and how you could legitimately reduce your tax liabilities – with careful planning you may find your tax burden is considerably lower than initially expected.

For example, investment income can be taxed very efficiently 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 this 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. For other heirs, it only applies to Portuguese assets.

And of course, there are many other benefits to living 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.

Income tax 2024

The income tax bands increase in line with inflation, so you can earn a little more before hitting the next tax bracket. The 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 you, someone earning €20,000 will pay €790 less tax next year, while anyone earning €70,000 will save €527.

Farewell the NHR

Since 2010, Portugal’s NHR regime has enticed many people to move here. While some considered it a temporary home, others found living here suited them so much they opted to stay after 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 December 31, 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.

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 in 2023 and either secured a promise of employment, signed a property purchase or rental agreement, or enrolled your children into a local school. This extends to other household members.

Replacement regime 

The regime replacing the NHR is focused on employment. It aims to attract foreign talent and investment to Portugal and applies to people who are employed in roles such as higher education teachers, scientific research, technology and startups. There will be a 20% flat tax rate on employment income and an exemption for foreign income.

To qualify, you cannot have been resident in Portugal in the preceding five years and your status will last 10 years.

Tax and financial planning

While these changes emphasise the need for professional advice to fully benefit from Portugal’s tax advantages, the attraction to live here remains as strong as ever.

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 here, where your assets are and 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.

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. 

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com

By Sharon Farrell
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Sharon Farrell is a Partner of Blevins Franks in Portugal.
www.blevinsfranks.com