Portugal is set to end controversial tax breaks for foreign residents after a wave of wealthy arrivals to the country drove up property prices.
The non-habitual resident regime gives residency to people who spend more than 183 days in the country a year. It includes a special tax rate of 20pc for income from “high value added” activities, which typically covers professors, doctors, architects and other professional roles.
Overseas expats who move to Portugal also receive a flat tax of 10pc on pensions from a foreign source, as well as a tax exemption on foreign-source income, including rental payments from tenants if it is taxed in the country of origin.
The benefits have also been available to Portuguese citizens who have lived abroad for at least five years.
However, the country’s Prime Minister, Antonio Costa, told CNN Portugal yesterday that the regime will end in 2024, but will remain in place for residents who already benefit from it.
Mr Costa described the tax regime, which was introduced to help Portugal’s recovery from the 2008 global financial crash, as a “fiscal injustice” that “no longer made sense”.
There are around 42,000 Britons who are residents of Portugal – the second largest group of expats living in the country. British expats who move there will no longer be able to benefit from the tax breaks if the policy is reversed.
It comes as the Portuguese government approved a plan earlier this year to end its golden visa programme for foreign property buyers as it tries to tackle housing unaffordability in the country.
According to a study conducted by the IFO institute at the University of Munich, the price of houses in Portugal is set to increase at a rate of more than 8pc per year over the next 10 years.
Official figures show that more than 50,000 people had benefited from the controversial regime by 2020, and the amount of foreign income that went untaxed due to the policy was around £1.3bn.
The move to scrap tax breaks for wealthy residents has been triggered by anger within the Portuguese government over new high-income residents moving to the country, which is driving up property prices for locals, especially in Lisbon, Porto and the Algarve.
Mr Costa added: “To maintain this measure in the future would prolong a fiscal injustice that is not justified, and would continue to inflate the housing market in a skewed way.”
Bruno Andrade, a tax partner at accounting firm PwC, told the Financial Times that the announcement was “quite surprising”, adding that the full significance of the policy reversal would be unveiled in a national budget next week.
Earlier this month, Andorra, a European principality, banned foreigners from buying property for three months in an attempt to keep local people in their homes.
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