Portugal’s Non-Habitual Residence tax scheme has been a game-changer for those seeking a tax-reduced or even tax-free lifestyle in this sunny haven.
But what happens when the 10-year NHR window closes? Many fear a substantial increase in tax exposure, but fear not! With some careful planning, you can still find yourself in an equally, if not better position post-NHR status.
During the NHR term, rental income from the UK is tax-free in Portugal, and you can sell your UK property without worrying about Portuguese capital gains tax.
However, after NHR, taxes kick in, and the difference can be striking. Your property becomes taxable at 28%, and in addition, during NHR you can sell your UK property free of Portuguese capital gains tax but post-NHR, you will face scale rates of tax on 50% of the gain.
Don’t forget: After the NHR term, you are simply treated as a standard Portuguese taxpayer, and there will be a clear contrast between pre and post-NHR treatment through the examples of UK property, pensions, and dividends.
But don’t despair! With early planning, you can avoid tax increases on pension income and dividends, as well as deplete your pension scheme during the NHR period and reinvest in a more tax-efficient structure that will continue to provide income post-NHR.
Some may even be considering an exit from their business, and the end of NHR can be a catalyst for reviewing options for a tax-free business sale. And for those with a 10-year plan to remain in Portugal and then relocate back to the UK when their NHR expires, there are planning opportunities to re-enter the UK system very tax-efficiently.
Don’t let your pension take a hit after your Non-Habitual Residence (NHR) status expires in Portugal! While under NHR, pension income is taxed at 0% or 10% (before and after 2022), but after NHR, it could soar to as high as 48%, depending on your pension type and reporting method. Be careful with lump sum payments, as they may trigger an unexpected tax charge, with the tax office considering them as long-term savings instead of pensions.
Seek advice if you plan to deplete your pension during NHR to avoid surprises.
So, whether you’re nearing the end of your NHR period or just starting, seek guidance early and make the most of your tax-free status in Portugal!