The income tax rates are higher in the UK compared to the European average tax rate. According to the 2019 study of international income rates of UHY (Urbach Hacker Young International Limited), the “UK taxpayers on the same salary would pay a 46.1% tax rate, less than in Ireland, Belgium or the US, but above the European average tax rate of 44.2%”.
As stated in the UK government website, as a UK citizen, you have to continue paying your national insurance and some taxes even if you don’t reside in the UK. However, there are some ways to be exempt from these taxes, and/or pay less.
Two of the most prevalent ways for this are:
- The Double Taxation Treaties (DTA), and
- Non-Habitual Resident (NHR) regime.
According to the UK government’s website, there are more than 130 countries that the UK has a Double Taxation Agreement with. In this way, you will be relieved from paying taxes twice on the same income, if you live abroad.
With the Non-Habitual Resident (NHR) regime in Portugal, beneficiaries are exempt from most of the taxes on their foreign source income for a period of ten years and pay fewer taxes on other incomes in Portugal.
Double Taxation Agreement (DTA)
Double Taxation Agreements are basically agreements signed between two or more countries to avoid taxation on incomes and properties in both countries. The agreements aim to split the taxations in the right way, and they aim to prevent tax evasions and to ensure the rights of the taxpayers.
In general, only some types of incomes and gains are taxable only in the country of residence, and others (such as capital gains on real estate, bank interest, and dividends) are taxable in both countries. However, with double taxation agreements between the UK and Portugal, most of the incomes are only taxable in the country of residence. Considering the high amounts of taxes in the UK, it would be favorable to apply for a residency or Golden Visa in Portugal, to pay fewer taxes on an existing income. Keep in mind that UK citizens are not able to apply for this program currently, but that this is going to change as of December 31st, 2020, once Brexit comes into effect.
Non-Habitual Resident (NHR) Program in Portugal
The NHR regime in Portugal is another option for the citizens of the UK thanks to the favorable tax plans of the program. It provides the investors and residents reduced tax rates and exemptions on some taxes. The program has been in effect since 2009 and proved to be very successful. According to the 2019 statistics of Finanças (the official Portuguese tax portal), there are 10.737 homes in Portugal which have non-habitual resident owners. To be able to benefit from this program, you either have to obtain the right to be a resident in Portugal as an EU/EEA/Swiss citizen, or you can obtain the right via applying for the Golden Visa Program in Portugal. In addition to that, you shouldn’t be a tax resident of Portugal in the last five years.
Considering the status of the UK after Brexit, the Golden Visa program seems a very convenient option to benefit from the reductions and exemptions on taxes. After you obtain the right to be a resident through the Golden Visa program, you can easily apply for the NHR.
With this regime, most of your foreign source income will be exempt in Portugal for a period of ten years, which will free you from a serious tax burden.
Considering the UK has a DTA with Portugal, the following incomes will be tax-exempt under the NHR program:
- Real estate income and capital gains
- Pension income
- Gifts or inheritance to family members
- Wealth tax