by Namrata Majithia 2nd August 2021
Retiring to Portugal? The lowdown on visas and property – and why you’ll only pay 10pc tax

Portugal is the ultimate mainland European destination for sun-seeking pensioners who want to minimise their taxes – yet it has always been a relatively unpopular choice.

Only 11,000 British pensioners lived in Portugal in May 2020, compared with more than 106,000 in Spain, according to figures from the DWP.

The sun-soaked Iberian country has enormous tax incentives, cutting pension taxes by more than half for Britons who relocate. On the healthcare front, all residents have access to government-subsidised medical treatments, much like in Britain. Expats have the same coverage as locals.

But there are a number of requirements any hopeful relocator would have to meet before getting the green light. Here is everything you need to know about relocating to Portugal, from taxes and visas to pensions and property prices.

How much money you will need to retire to Portugal

Most countries in the EU require proof that expats can maintain a minimum income. Pensioners typically have to show either their savings accounts, private pensions, the state pension or proof they will receive the money in dividends or rental income.

Portugal is no exception but the bar is much lower compared with neighbouring countries. It only requires people to have “sufficient resources” for a two-year period, which can be made up of savings and/or income.

British pensions must be able to match the Portuguese minimum wage, which is €665 per month. A retired couple arriving from abroad would only need to have an income or savings of €11,970 (£10,197) for each year they live in the country.

This amounts to €23,940 over a two-year period. The full state pension is currently worth £9,350 per year, which more than covers the requirements providing the couple each receive it.

A single person moving to Portugal would need an additional €1,230 on top of the state pension each year to meet the individual requirements. A pension pot worth £40,000 would be more than sufficient to cover this throughout retirement, according to calculations by Blevins Franks, a financial adviser.

Meanwhile, Spain requires foreign nationals to have an income or available savings of €27,115 (£23,258) for each year they live in the country.

Getting the right to move: sort out your visa

Since Brexit, anyone planning to move abroad must apply for a longer stay visa if they want to spend more than 90 days in a European Union country.

Britons must apply for a local tax number, known as a Portuguese NIF number, and open a bank account in advance.

There are two visas pensioners can apply for. The first is called the D7 Passive Income, which can be submitted at the nearest Portuguese embassy or consulate and costs between €50 and €300 per applicant. This permit is designed for those who are not looking for employment and plan to live off investment or pension income.

This requires proof of accommodation, either a signed lease agreement or bought property and evidence they have enough cash to look after themselves. Anyone hoping to move must also have private medical insurance.

The visa applies for four months, during which applicants can move to Portugal and apply for the two-year residency permit.

The second type of visa, the “Golden Visa”, is more expensive but allows Britons to gain flexible residency rights in a lot of EU countries in exchange for investing a substantial amount in local property or investing in the economy.

To meet the real estate investment requirements, Britons must purchase a single or multiple properties worth at least €500,000 in a popular area, such as Lisbon, Porto and the Algarve or €400,000 in a low density area.

Other investment options for the golden visa include generating 10 new jobs for a Portuguese business, investing at least €350,000 into research, private equity or an existing company.

Golden visa applications cost €5,000 to €10,000 in legal fees and nearly €6,000 in government fees.

All you need to know about Portuguese tax rules

Portugal has some of the most attractive tax rules for foreign pensioners. Pension income is only taxed at a flat rate of 10pc as long as it was sourced from abroad. Income drawn from a pension pot is taxable where the person lives, so in Portugal rather than in the UK. The only exception is Government employee pensions, which will only be taxable in the UK.

This means Britons moving to Portugal would pay significantly lower taxes. For example, someone in the UK taking a £30,000 income in retirement would pay 20pc tax but only 10pc if they moved to Portugal. The savings are much higher for higher rate taxpayers, who cut their bills by three quarters.

Anyone who hasn’t been taxed in Portugal in the last five years will fall under these “non-habitual residence” tax rules for 10 years.

Jason Porter, of Blevin Franks, said: “Portugal has a very attractive tax system for retirees. Despite the reputation that it has for high taxation, this is not always true.”

Unlike other European countries, Portugal has no wealth tax. However, there is a property tax on urban properties owned worth more than €600,000 per person, or  €1.2m per couple.

There is no inheritance or estate tax in Portugal, which means any gift or inheritance received by a spouse, child or parent is tax exempt.

However, inheritance tax rules in Portugal could inadvertently result in money going to the wrong family members.

Under Portuguese law children, whether from a current or previous relationship, are classified as “reserved heirs”, which means they are entitled to a certain portion of the deceased’s estate. This rule supersede the current spouse.

But there is a way around this. European succession regulations allow people to elect in their will for the inheritance rules of the country of their nationality to apply. This means Britons can stick to UK inheritance tax rules by requesting it in their will.

Buying property in Portugal

Portuguese property has been much cheaper than in Britain on average. The national average sq. meter costs €1,212 (£1,033) in Portugal, compared with £2,948 in Britain, according to Knight Frank, an estate agent.

The Lisbon region has the most expensive property value, at €3,081 per sq. metre on average over one year to March 2021. Meanwhile, properties in Lagoa in the Algarve cost €1,361 per sq. meter on average.


Source: The Telegraph