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Retirees are living the high life in low-tax Portugal – but it won’t last for long
A socialist government means its coveted ‘golden visa’ scheme is on borrowed time
Thousands of British retirees have flocked to the shores of the Algarve, nestled in Portugal’s “golden triangle” of resort towns, golf courses and pristine coastline.
The lure is plain to see: why not spend your twilight years basking in the sun – little rain, little worry and very little income tax.
Portugal’s “golden visa”, known officially as residence permits for investment, is issued in exchange for property purchases of €500,000 (£432,000) or more. In return, you gain the right to live in Portugal for five years, after which you can apply for permanent residence, though the minimum required stay in the country is only a few days each year.
Perhaps the most appealing of the many incentives through the non-habitual residency (NHR) programme is that pension income is only taxed at a flat rate of 10pc, as long as it is sourced from abroad for 10 years. The only exception is government employee pensions, which are always taxable in Britain.
This golden visa scheme, designed to revive Portugal’s economy after the financial crisis, has been a roaring success, netting more than €6bn in investment.
But these golden gates are about to slam shut, as Portugal’s socialist government draws up plans to pull the scheme from legislation.
Under growing pressure to free up more affordable housing, the socialist prime minister, Antonio Costa, told the press this month: “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.”
Portugal follows in a long string of European countries closing their golden visa scheme: in 2020, Cyprus closed its citizenship by investment programme. In February 2022, Britain too ended its foreign investment offer. Ireland followed early this year.
The Portuguese are still pushing the closure of the visa programme through parliament, and will need a signature from the nation’s president. But financial advisers have warned the window could close in a matter of weeks, leaving the sunny retirement dreams of thousands of British savers in tatters.
Initial drafts of the Portuguese government’s budget for 2024 suggests the NHR scheme could close to new applicants from the beginning of next year.
Anyone who currently has this status will maintain the same benefits and tax relief for the remainder of their 10-year period. After this point, you become a normal taxpayer like anybody else living in Portugal.
Telegraph Money went to the sunny nation to meet the British retirees enjoying the perks of the visa that is now living on borrowed time.
‘Gold coasts, gold visas, gold retirement – we miss nothing about Britain’
While house prices across Britain and much of Europe have deflated in the past year, Portugal has defied the weight of higher borrowing costs.
Portuguese homes have risen by 6.5pc in the past 12 months, soaring in hotspots such as the Algarve by as much as 15pc. Market watchers expect prices in some regions to climb even further by 8.7pc next year.
Yet prices are still relatively cheap. The average price for a home in London is £528,000 – enough to buy a four-bedroom apartment in the Algarve.
It is little wonder that British families have snapped up holiday homes in their droves. But a lack of affordable housing dominates the local press – and golden visa holders are being used as a scapegoat, experts suggest.
Jason Porter, of the financial adviser Blevins Franks, said that the abolition of the golden visa sat alongside a raft of measures by the government intended to push down house prices, including increasing tax on uninhabited houses.
He said: “These are reflective of comparable moves by governments across most of Europe, including near neighbours, Spain and France, which are introducing similar national and local tax increases to encourage the sale, or the long-term rental of unoccupied or second properties in areas where local residents are struggling to afford the increase in property prices.
“The aim is to push down property prices and bring more homes into the rental market, which should in turn lower rental costs.”
But many British expats snapped up cheap holiday homes along the Portuguese coast in the 2000s when prices were still very low.
Stephen Brian, who bought a holiday home in 2004, moved permanently to Portugal once the pandemic hit.
“We had just retired before the pandemic and were staying in Portugal on holiday,” he said. “Then we got locked down during Covid and every time we tried to book a flight home it was cancelled.
“Then my wife asked: ‘Why are we so keen to go back to the UK?’
“So we stayed locked down here for eight months, and eventually we took the plunge. We’d only ever spent as much as two weeks here but it’s a whole different place when you come to live here permanently. You go out at the weekend, but you live a normal life. You aren’t down the marina every night.”
Mr Brian, who worked as a joiner in Kent, added there is no downside to his life in Portugal. “I play golf, padel [tennis] and cycle – everything is here.
“There was a slight drug problem on the marina last year, but they seem to have sorted it out and those people have disappeared back to Albufeira.
“There is a huge expat community – and you get lots of different nationalities which is a nice thing. You get the Dutch, Swedes – we are learning more about Europe than we ever did in the UK.”
While Mr Brian and his wife sold their house shortly after they decided to remain in Portugal, others have preferred to keep a home waiting for them back in Britain, despite the running costs. It is true much of the Algarve, where a combination of sun, sea and expansive golf courses draws thousands of people across the continent down to its coast. But some prefer to keep one foot out the door.
Brian Mulrey, who is originally from Australia, moved to Portugal after he retired in 2017 and said they had chosen to keep their family home in Weybridge, Surrey.
“It’s only a two and a half hour flight back to the UK,” he said. “It’s almost like catching a bus. You don’t have to worry about luggage, check-in – you just get on a plane and you’re just there.”
Mr Mulrey, who is now a key investor in several local businesses, added the golden visa scheme was a key driver behind their move to Portugal.
“It was particularly advantageous for me because when I retired we sold the business to private equity funds, and the sale was structured in a way that the benefits you got were mainly as income rather than capital gains. There was a huge benefit through the residency scheme.
“That was the thing that drove us here in the first place, but we always remembered something our financial adviser said – never move somewhere just for tax reasons.
“For me, Portugal is the closest thing to a lifestyle in Australia but with a three-hour flight rather than a 24-hour flight. I love it here – I love the people, they are so good to deal with. I have invested in a few businesses here, and in my former career I travelled to a lot of places in Australia, Asia and Europe.
“Portugal was always the standout anyway – the honesty, integrity and sheer friendliness of the people.”
Peak season in August can be difficult, especially as heat waves are hitting the country with increasing frequency. This summer, temperatures hit as high as 46.4C. Uncomfortable weather, combined with an influx of tourists into the region, mean that retirees often retreat to their homes for a few weeks.
Mr Brian says: “If you can suffer August, you will be fine. It’s just getting around – we hardly go out during that month. The traffic is backed up all around the town, as it’s a one-way system.
“Last August I went down to the shop for some rolls, in what is usually a 15-minute round trip. But it took an hour and 10 minutes. People from Lisbon come down and take over.
“I’ve found they’re more arrogant in the north of the country,” Mr Brian, who is originally from Manchester added. “In England the north is a bit more friendly, but I’ve found it’s the other way round in Portugal.”
A much lower cost of living has been another key pull. Trevor and Pat Roberts made their holiday home close to Albufeira their permanent residence around a decade ago. “My employer sent me out to Australia to work in early 2010, and I wasn’t sure how long I would be out there for,” Mr Roberts said.
“So we put our house in Warwick up for rent, then five months later they said the job you are doing will no longer exist – either take another job or take this package.
“Well the package was enough to pay off a small loan, buy a new car and save a bit. We did not want to kick our tenant out, so we said why don’t we see what it’s like living in our holiday home? And here we are 13 years later.
“We gave ourselves six months. After three months we knew this was it. Living near the beach is fantastic, the cost of living is lower and the weather is great.
“It’s true prices are going up – a few years ago we would go to a restaurant, have a starter, a main course each, a dessert to share and a bottle of wine – typically the bill would be €55, now it’s more like €70. But everything has gone up and even at that price it’s amazing.”
How to get to Portugal in time – and where else you could go
There are other routes to retirement in Portugal, such as the D7 Passive Income visa. You can apply for this at a Portuguese consulate in Britain. It costs €90 and is valid for four months, during which you must replace this with the two-year residency permit at a cost of €160.
There are other European countries that are still open to retired British expats – not least Portugal’s neighbour, Spain. While the income tax incentives are nowhere near as compelling, the country can offer a similar lifestyle and climate.
Pensioners are categorised as “economically inactive” in Spain, which means they have to fulfil extra requirements to stay in the country, compared with working-age people.
There are two types of visas to earn the right to live in the country: the “non-lucrative visa” and the golden visa.
The Spanish golden visa provides permanent legal residency without the requirement to spend any time in Spain – but it requires a €500,000 investment in real estate, or €1m in investment funds, bank deposits, or listed company shares in Spanish financial institutions, €2m in Spanish government debt, or a business investment that delivers jobs.
France too remains a popular retirement destination – but the administration can be demanding and even make the process of moving more expensive.
If you are retiring to France, you will need a visa that proves you have a minimum level of income – this can be supplemented with savings and investments you can draw on.
British arrivals must have an income equivalent to the French minimum wage, which on January 1, 2023, amounted to €1,709 (£1,486) per month, or €20,511 per year.
After five years of living in France, Britons can apply for permanent residency – the “carte de résident de longue durée” – which is valid for 10 years and also gives you the right to work in the country.
Your pension income will be taxed, unless you have a British government pension, in which case it will be taxed by HMRC. You will also be taxed on any worldwide income, including any interest incurred on bank account savings, even if it is not actively used.