Framework

The British Government has presented its budget proposal (known as the “Autumn Budget“) on 30 October 2024, resulting in the biggest tax increase in 30 years.

The proposal put forward will have a number of tax implications not only for UK citizens, but also for foreign citizens with tax residency in the UK, or for those who intend to invest there. On one hand, the increases in the capital gains tax rate, the increase in stamp duty on second homes, the increase in tobacco and alcohol taxes and the abolition of the “Non-Dom” status (which will be analysed in particular) stand out. On the other hand, the increase in minimum wages and the maintenance of tax rates on labour income, among others, also stand out.

Abolition of the Non-Dom Statute from April 2025 and its practical implications

The “Non-Dom” status for citizens who are resident in the United Kingdom and whose permanent abode for tax purposes is outside the country will be completely abolished with effect from April 2025.

The government has now announced that it intends to introduce a new tax regime with competitive advantages for those who choose the UK as their temporary destination, without, however, giving details of the exact terms of this new regime.

The repeal of this regime, which was introduced with the aim of attracting foreign investors through tax benefits on the taxation of their income and investments, could have medium and long-term implications for the United Kingdom:

• Lower foreign investment, either on movable or immovable assets.
• Higher exodus abroad, to jurisdictions with more competitive tax regimes;
• Consequently, loss of tax revenue.

Portugal as an Alternative

Moving to another country is never an easy step, but the significant changes in the Autumn Budget may lead many UK residents to consider changing their tax residence, especially those on high incomes.

Despite some setbacks in recent years, Portugal continues to be a preferred destination for those looking to combine quality of life with a more favourable tax regime, making it a smart and balanced solution.

• • RNH – sunset clause still valid – the first option consists of the possibility for citizens who meet the requirements to become Non-Habitual Residents (RNH), and the requirements set out in the transitional provisions of the regime, to apply until 31 March 2025, (which requires changing their tax residence to Portugal by December 31^st, 2024).
    Remember that the NHR allows income generated in Portugal from high value-added activities to be taxed at a flat rate of 20 per cent. The rate for pension income is also reduced to just 10 per cent, which makes it possible to make huge savings compared to effective taxation in the UK. Finally, the NHR regime establishes that foreign sourced income such as dividends, interest and certain capital gains may be exempt from taxation, provided they are, or may be, taxed in the country of origin, which can be very favourable for those who come to live in Portugal and keep their assets abroad.

• • Personal income tax for young taxpayers – Portugal is also an extremely attractive country for taxpayers up to the age of 35 as, from 2025 onwards, there will be a total or partial exemption from IRS on income in categories A and B, regardless of the course of study that these young people have completed.

• • RNH 2.0 – since the beginning of 2024, the law has provided for a new mechanism to attract high value-added professionals, especially in the fields of scientific research and innovation, which consists of taxing at a flat rate of 20 per cent the income earned by taxpayers who (a) become tax residents in Portugal; (b) have not been tax residents in the Portuguese territory in the five years prior to the application for becoming Portuguese tax residents; and (c) carry out scientific research or innovation activities, as provided for in the Tax Benefits Statute.

• • Return Programme – this programme was created to encourage emigrants or family members of emigrants to return and settle in Portugal by granting them, among other things, tax benefits in terms of the taxation of their employment or business income. Through this measure, all those who have been tax residents in Portugal in the past and who are currently residing in the UK can pay only half the tax they would pay if they were taxed under the general regime.

• • No inheritance tax – Portugal is also an ideal country for those wishing to plan their succession and estate, and it should be noted that since 2004 there has been no inheritance or gift tax for direct family members. As a result, the Portuguese tax system is very advantageous for those who want to plan the transfer or transmission of their assets while they are still alive.

• • Obtaining residency and Portuguese nationality in just 5 years – Portugal has one of the most successful programmes for granting residency to those conducting an investment activity (“golden visa”), known for its flexibility regarding the minimum period of stay (just 7 days a year) and the multiplicity of eligible activities, with a good return on investment. In addition, after five years of resident status, any foreign national can acquire Portuguese citizenship for life and unconditionally become a citizen of the European Union. All these advantages are also extended to the investor’s family members and constitute an excellent plan B for those who favour international mobility and a more diversified personal life.

Pinto Ribeiro Advogados has a specialised team to provide all the advice needed to take advantage of each of these measures and can design tailor-made solutions for each client.

Written by the Tax Law Department: Teresa Alves de Sousa (Coordinator), Ladislau Gomes (Lawyer), Maria Francisca Quaresma (Lawyer) e Gilana Sousa (Lawyer).