When Your Portugal NHR Status Runs Out: How Insurance Wrappers Can Help Reduce Taxes

Portugal’s Non-Habitual Resident (NHR) regime has become one of Europe’s most attractive tax incentives, drawing thousands of expatriates seeking a decade of favorable tax treatment. But what happens when those 10 years come to an end—and how can you prepare?

At Luso Financial Planning, we specialise in helping international residents in Portugal manage this transition effectively. Here’s what you need to know about the end of your NHR period and why insurance wrappers can be a powerful tool for tax efficiency.

Understanding NHR: A Quick Recap

Introduced in 2009, Portugal’s NHR regime offers qualifying new residents:

• A flat 20% income tax rate on certain Portuguese employment or self-employment income.

• Significant tax exemptions for foreign-sourced income, including pensions, dividends, royalties, and rental income (subject to conditions and recent changes).

The regime lasts for 10 consecutive years from the year you are granted NHR status.

What Happens When NHR Ends?

When your NHR period expires:

• Foreign income: No longer benefits from automatic exemptions and may become fully taxable under Portugal’s standard progressive tax rates (currently up to 48%).

• Pension income: Instead of the fixed 10% NHR rate on foreign pensions (for those who applied after 2020), you may face higher progressive tax rates.

• Investment income: Dividends, interest, and capital gains may become subject to a flat 28% tax (or higher if you elect to aggregate with other income).

Without proper planning, your annual tax liability could increase significantly.

Insurance Wrappers: A Proven Solution for Tax Efficiency

One of the most effective ways to manage tax exposure after NHR is by using tax-efficient investment vehicles, such as insurance wrappers (also known as life assurance bonds or investment-linked life policies).

These are offered by EU-regulated insurance companies and bring several benefits:

✅ Tax deferral: Gains within the wrapper grow tax-free until you make a withdrawal. This allows your investments to compound more efficiently.

✅ Favourable taxation on withdrawals: In Portugal, only the growth portion of a withdrawal is taxable. Plus, after holding the wrapper for:

• 5 years: only 80% of the gain is taxable;

• 8 years: only 40% of the gain is taxable.

Effectively, this can reduce your tax rate on investment gains from the standard 28% to as low as around 11% (40% of 28%).

✅ Estate planning: Insurance wrappers can help transfer wealth efficiently to heirs, often bypassing probate.

✅ Investment flexibility: Access to a wide range of global investment funds in multiple currencies.

How Luso Financial Planning Can Help

At Luso Financial Planning, we specialise in helping expatriates and returning Portuguese residents plan for life after NHR. Our team:

• Reviews your assets, income sources, and residency situation.

• Designs tailored strategies using insurance wrappers and other tools.

• Helps you remain compliant with Portuguese tax rules while optimising your long-term financial security.

Whether you’re a few years away from the end of your NHR period or your status has already expired, it’s never too soon—or too late—to plan.

Contact us today at www.lusofinancial.com to book a consultation and explore how tax-efficient solutions can protect your wealth in Portugal.