Since its inception in 2009, Portugal’s Non-Habitual Resident (NHR) tax regime has been a game changer for the country’s real estate market, attracting foreign investors, high-net-worth individuals, and retirees. Designed as a strategic initiative to boost the economy, the NHR scheme offered significant tax breaks for new residents, making Portugal one of the most attractive destinations for expatriates looking to optimise their tax situation. However, with the scheme set to end in December 2024, the landscape is shifting, and homeowners in popular areas like São Brás de Alportel and Santa Bárbara de Nexe should understand the full context of this change.
The Launch of the NHR Scheme
Introduced as part of the Portuguese government's efforts to boost foreign investment, the NHR scheme granted favourable tax conditions for new residents, particularly appealing to retirees and high-income professionals. The key benefits included:
- A 20% flat tax rate on income derived from high-value activities in Portugal (such as engineers, doctors, and IT professionals).
- Exemptions on foreign-sourced income, including pensions, dividends, and royalties, which, under certain conditions, could be tax-free in Portugal for 10 years .
These incentives, coupled with Portugal's Double Taxation Agreements (DTAs) with numerous countries, allowed many expatriates to legally avoid paying tax on their income in both their home country and Portugal. This made Portugal highly appealing for those looking to retire or relocate to a tax-efficient jurisdiction.
Growth and Impact on the Property Market
The NHR regime played a significant role in driving the growth of Portugal's property market. By attracting wealthy foreign residents, property prices in popular regions, including the Algarve, Lisbon, and Porto, experienced a significant rise. Areas like São Brás de Alportel and Santa Bárbara de Nexe saw a surge in demand from international buyers, particularly due to their peaceful, scenic surroundings and proximity to major hubs like Faro
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Criticism and Reforms
While the NHR scheme boosted foreign investment, it was not without its critics. Over the years, there has been increasing pressure from other EU countries, particularly Finland and Sweden, which objected to the double non-taxation of pensions for their citizens residing in Portugal. In response, the Portuguese government made reforms in 2020, introducing a 10% tax on foreign pensions, though existing NHR beneficiaries continued to enjoy full exemptions
.
The End of the NHR Scheme: 2024
In 2023, the Portuguese government announced that the NHR regime would be phased out by the end of 2024. This decision was driven by growing concerns that the scheme was inflating property prices and benefiting foreign residents at the expense of locals. The termination of the scheme means that new applications will not be accepted beyond December 2024, though those already enrolled will continue to benefit for the remainder of their 10-year period.
What Does This Mean for Sellers?
With the NHR scheme ending, there is a short-term window where foreign buyers, particularly those keen to lock in their tax benefits, are still actively seeking properties in Portugal. For sellers, this represents a golden opportunity to capitalise on heightened demand, especially in sought-after areas like São Brás de Alportel and Santa Bárbara de Nexe. Homes in these regions are particularly appealing to buyers looking for peace, space, and easy access to the Algarve coast.
If you are considering selling your property, now may be the ideal time to list, as buyers are rushing to complete transactions before the NHR benefits disappear.
Looking Ahead: The Post-NHR Market
While the end of the NHR scheme is expected to slow down the influx of foreign buyers, Portugal remains an attractive destination due to its quality of life, favourable climate, and competitive property prices compared to other European countries. Additionally, new initiatives, such as the Incentivised Tax Status Program (ITS), are being introduced to continue attracting high-value professionals, although these will have more specific eligibility criteria and will exclude passive income from pensions
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Conclusion
As we approach the final months of the NHR regime, property owners in areas like São Brás de Alportel and Santa Bárbara de Nexe have a unique opportunity to take advantage of the current demand. If you’re thinking about selling, now is the time to act before the market adjusts to the post-NHR reality.
For more information on selling your property or understanding the current market trends, feel free to contact us at ACPS Real Estate. We're here to help you make the most of this transition period and ensure you get the best value for your home.
