Brits in Portugal to Wave Goodbye to Tax Perks

Portugal, a popular destination for many Brits looking for sun, sea, and more recently, tax breaks, is about to change its welcoming tune.

Portugal has a tax scheme for those who aren’t originally from there but decide to make it their home. If you lived in Portugal for over half the year, or 183 days to be exact, you could get some generous tax perks. This scheme is called the non-habitual resident regime.

In simple terms, if you had a job there in roles often seen as quite skilled, like being a professor or architect, you’d only have to pay 20% on your income. Not bad, right? But it gets even better. Those moving from abroad also had to pay only a 10% flat tax on foreign pensions. Plus, if you earned rental income from a property you owned in another country, you wouldn’t be taxed on that in Portugal if you were already paying tax on it back home.

This deal wasn’t just for foreigners either. Even Portuguese folks who’d lived abroad for five or more years could hop onto this deal when they returned.

Change on the Horizon

However, the Prime Minister of Portugal, Antonio Costa, has come out to say, “Enough’s enough!” The tax breaks will finish in 2024. But if you’re already in Portugal and making the most of these benefits, don’t pack your bags just yet. You’ll still get to enjoy them.

The reason behind the change? Prime Minister Costa thinks this tax setup is unfair and isn’t needed anymore. He points out that this scheme was introduced after the 2008 financial crisis to give Portugal’s economy a boost. But now, it’s causing some issues.

What’s the Fuss?

This tax perk has brought a lot of well-off individuals into Portugal, and a side effect of that is soaring property prices. When many wealthy people want to buy homes, it can make houses too expensive for the average Portuguese person, especially in popular areas like Lisbon, Porto, and the sunny Algarve.

According to some smart people at the University of Munich, house prices in Portugal are expected to climb by more than 8% every year for the next decade. And with about 42,000 Brits living in Portugal (they’re the second-biggest group of expats there!), you can see why there might be some concern.

Big Picture

It’s worth noting that this isn’t just about making life fair for locals versus newcomers. The Portuguese government also stopped their ‘golden visa’ scheme for foreign property buyers earlier this year, aiming to make housing more affordable. By the end of 2020, the tax scheme had cost Portugal about £1.3 billion in lost tax money because of all the foreign income that was untaxed.

The decision to end these tax perks has raised a few eyebrows. Bruno Andrade, a tax expert at the accounting firm PwC, expressed his surprise. We can expect to hear more details on what this means for Portugal’s finances in their national budget announcement next week.

Finally, while Portugal is making headlines with this move, other places are having similar debates. Andorra, a small nation between France and Spain, has gone a step further and temporarily stopped foreigners from buying properties there, all to help locals stay in their homes.

In conclusion, if you were eyeing Portugal for its tax breaks, it might be time to think twice or rush to make the move before the changes kick in!