One of the things I feel most vulnerable about is money—or, more specifically, lack thereof. I remember stories my father used to tell us as youngsters about going to the “poorhouse.”

When I graduated from college and got my first job, I spent too much money, paying for what I couldn’t afford by credit cards. To pay them off, I took out a loan from the teacher’s credit union. I worked three jobs – teaching Spanish full-time, teaching French part-time after school in another town miles away, and tutoring students in English in whatever my spare time – until my debts had been paid. Nonetheless, I still lived paycheck to paycheck.

But I swore that I would never again be held hostage by creditors.

Among the reasons we left the USA was the skyrocketing cost of living. Even without the high inflation, housing prices (to buy or rent) would have been beyond my means if I hadn’t bought early, before costs became prohibitive and mortgage rates exorbitant. Insurance – property, vehicle, health – was out of control. Through our local agent, we were able to secure insurance for our two cars at about $1,200 per year (a bargain!). Housing insurance was another $500. And, by the time we said “Adios” to the states, I was on Medicare but having about $170 per month deducted from my monthly payment to cover “Part B” while, at 54, my spouse was paying nearly $1,000 each month for bare-bones health insurance … under “Obamacare.”

Insurance in Portugal is a good case in point about how the cost of living here has been substantially lower without sacrificing our quality of life. Our annual homeowner’s insurance here is about €125 (US $132); we pay about €675 ($710) each year to insure our two cars – one new, the other older – with top-of-the-line coverage. Even though national health care is free in Portugal to citizens, resident expats, and immigrants, we chose to augment it with private health insurance. Nothing against Portugal’s excellent health care … but the bureaucracy; we wanted to be able to choose which doctors and dentists we saw when and where without waiting months for appointments. Through our membership in afpop (Association of Foreign Property Owners in Portugal), we qualified for comprehensive health insurance at about €2,200 ($2,300) per year. Reduced, fixed cost dental coverage was included. If a provider was out-of-network, the insurance company reimbursed us 80% of what we spent.

All things considered, we lived comfortably within our budget with even a little to spare from my $2,200 Social Security payments each month.

With 2024 looming, we were in for some unsettling shocks that made us worry anew about whether Portugal was still affordable and, if so, what would we have to cut to feel (relatively) comfortable again about income and expenses. When you’re on a fixed income, it’s challenging!

The first change was announced in the fall of 2023: Portugal was doing away with its Non-Habitual Resident (NHR) program and status, introduced to entice foreigners to live and invest in Portugal. Essentially, it capped our taxable income at 20% or zero if we were pensioners. Open to people with a variety of “essential” backgrounds, to qualify one must not have lived in Portugal during the previous five years. The benefits lasted for ten.

Prime Minister António Costa argued that the Government decided not to prolong “a measure of fiscal injustice, which is no longer justified, and which is a biased way of inflating the housing market, which has reached unsustainable prices. In 2024, special taxation for non-habitual residents will end. Whoever has it will keep it”, he said in relation to foreigners residing in Portugal who already have this tax benefit.

According to the leader of Portugal’s executive branch, “the measure for habitual residents has already fulfilled its function and, therefore, it makes no sense to maintain a tax for non-habitual residents. There was a time when it was necessary. This measure made sense. In the first ten years, 59% of people who had benefited remained in Portugal, despite the regime having ended. But at this point it doesn’t make sense anymore,” he reinforced.

Costa’s announcement was the latest example of Portugal’s diminishing enthusiasm for new residents, following a decision to abolish a “golden visa” program for wealthy non-Europeans. The moves have been driven by angst over the impact of foreign money in the real estate market, where a surge in house prices left many residents struggling to find adequate accommodation, particularly in the cities of Lisbon and Porto and in the Algarve. The head of a Socialist government facing widespread public discontent over the issue, Costa told CNN Portugal: “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.”

The tax breaks, available to people who become resident in Portugal by spending more than 183 days a year there, include a special tax rate of 20 per cent for work income from “high value-added” activities, which covers professors, doctors, and architects among other professionals. Another element is a flat tax rate of 10 per cent on pensions from a foreign source. Originally a full exemption from tax on pensions, Portugal introduced the 10% rate to quell complaints from EU countries, including Sweden and Finland, whose retirees were moving to the country. A third benefit under the special regime was a tax exemption on foreign-sourced income, including rental payments from tenants if it is taxed in the country of origin.

What would be the practical effects of eliminating NHR? The chart below tells one story, but people potentially affected by it tell another.

A Swiss developer who had planned an investment of more than 100 million euros in Lisbon decided to cancel the project after António Costa announced the end of the non-habitual resident regime (NHR) in the country.

At issue was a project of 150 residential units “for middle and upper-middle class Portuguese in the center of Lisbon,” according to Pedro Vicente, CEO of the Overseas developer and reported by Jornal Económico. “The Swiss investor us told us that they had lost confidence in the Portuguese market and that they are very worried about the effect this decision will have on the market.”

In addition to the “domino effect” the end of the regime will have on real estate, José Cardoso Botelho, CEO of Vanguard Properties, warned of the impact on the entire economy.

Debating the issue, one Portugal resident put it this way: “After this bill has passed, they might change their mind later after all the foreigner revenue dries up. Honestly, this change is mostly because life in PT is now unaffordable for its own citizens—in large part because of the foreign earned income influx. That is a policy problem, not a foreigner problem. I think they’re betting on all of us coming, anyway. But Americans, especially, aren’t accustomed to paying high taxes and will find other solutions. Compared to other EU countries, Portugal’s infrastructure is poor Things do cost more here. It was something to put up with for the tax break. But without that it doesn’t look so appealing. I hope it makes life better for the locals, but I think of all the local people who took a gamble and started a business that serves those who had made that plan to move to PT permanently. They will lose revenue, too. And possibly their family businesses. It’s a bad move and a short-sighted political stunt.”

Added another, “My wife and I bought a house in Portugal two years ago, planning to retire here in four years. Like most Americans, Portuguese taxes without NHR will be triple our US taxes. You are lucky you have not yet closed on your purchase. If you are not yet legally obligated to buy, I would pull out. There are many good programs elsewhere in Europe including Italy, Greece, and France. Portugal is a wonderful country in many ways, but without NHR its taxes are totally obscene.”

Complained a third, “My wife and I are a retired professional couple from Maine who were planning to move to Cascais on January 1, 2024. We retained an attorney in Lisbon to help us with the process. Our consulate appointment in Boston was scheduled for October 24^th. We also retained the services of a relocation firm that had found us what appeared to be a terrific apartment. We opened a bank account and purchased airline tickets. On October 12^th, we met via Zoom with both our attorney and accountant. Our attorney advised us that we had at best a 50/50 chance of obtaining NHR status by December 31^st. Our accountant warned us that without that status our tax liability would triple over our US obligations. Our hope was to assimilate into a new culture and to contribute in some fashion to our new home. That hope is now over.”

If you registered as a non-habitual resident before 31 March 2020, your foreign source pension income is generally tax-free. If you are registered from April 2020 onwards, your foreign pension income is generally taxed at 10%.

Residents in Portugal for tax purposes are taxed on their worldwide income at progressive rates, varying from 14.5% to 48% for 2023:

Taxable income (€)	Rate (%)	Deductible amount (€)
Up to 7,4797	14.5	–
+ 7,479 up to 11,284	21	486.14
+ 11,284 up to 15,992	26.5	1,106.73
+  15,992 up to 20,700	28.5	1,426.65
+ 20,700 up to 26,355	35	2,772.14
+ 26,355 up to 38,632	37	3,299.12
+ 38,632 up to 50,483	43.5	5,810.25
+ 50,483 up to 78,834	45	6,567.33
+ de 78,834	48	8,932.68

Although foreign pension income is no longer tax free under the non-habitual residence regime, it does benefit from a flat 10% tax rate. Considering the income tax rates range from 14.5% to 48%, the 10% tax is still a significant advantage.

Even though Portugal and the USA, among other nations, have “no double-tax” treaties, they mean that Portugal won’t tax you on the money the USA’s IRS does—and vice-versa. But there’s a catch: Say, Uncle Sam doesn’t impose taxes on those earning less than US $15,000 per year. Portugal can tax this amount. And Portugal’s income taxes are high—very high!

400% increase in car tax

If doing away with its Golden Visa and Non-Habitual Resident tax incentives weren’t enough, Portugal also announced in late October 2023 that it would quadruple the annual road taxes (IUC) consumers paid for older cars.

A 900cc petrol car, registered in May 2005, paid 19.34 euros in IUC in 2023, a value that will reach 96.92 euros (a 401% increase) over the coming years.

At issue is a measure included in the State Budget proposal for 2024 (OE2024) that changes the taxation rules, in terms of IUC, for category A vehicles registered before 2007 and motorcycles (category E), determining that these are no longer taxed solely based on engine capacity (as is currently the case), but the environmental component is now to be considered.

The OE2024, however, contains a “safeguard” clause, determining that the increase in tax cannot, each year, rise by more than 25 euros.

Thus, that gasoline car, with 900 engine capacity, will pay around 44 euros in IUC in 2024, reaching in 2027 the tax value equivalent to a car with the same characteristics, but with registration after July 2007. The same Simulations show that a diesel car, with registration from January 2006 and 1995 engine capacity, for example, will see the IUC rise by around 430%, going from 45 euros paid in 2023 to 231 euros with the new rules.

The measure has led to the launch of a public petition against this worsening of the IUC, which already has more than 163 thousand signatures.

Insurance Rates Skyrocket

If tax increases aren’t enough to blow a budget for living in Portugal, consider what’s happening to insurance—health care insurance, especially. Rates from 2023 to 2024 aren’t just increasing … they’re going through the roof.

Most who retire to Portugal are of “a certain age,” precluding their ability to purchase private health care coverage (which, by and large, is only available to people under 60). In fact, only two reputable insurance companies – Allianz* and MGEN – offer (non-cancellable) comprehensive health care packages to those 70 or older without “previous conditions” clauses. *These policies underwritten by Allianz are only available to afpop (Association of Foreign Property Owners in Portugal) members through its partner brokerage, Medal.

Afpop members with health insurance coverage through their agreement with Allianz recently received this email:

Dear Customer,

Your health insurance will soon renew, with new conditions.

The insurance market has seen significant increases in costs in recent years, particularly in the health sector. High inflation and technological advances, which provide access to new treatments and medicines, contributed to these increases, which occur across all age groups.

In order to guarantee the sustainability and quality of service to which we are committed, we annually check the renewal conditions of our clients’ policies, taking into account market costs and contract accident rates. After this analysis, we concluded that it is necessary to adjust the conditions of your insurance.

The contact premium will increase by 60% compared to the previous year.

That means:

• Co-pays will be higher;

• We’ll be reimbursed less;

• Our out-of-network costs will increase; and

• Our annual policy will jump from its current €2,200 to more than €3,520 as of January 1, 2024.

That’s absurd and totally unacceptable!

I contacted both afpop and our Medal agent to confirm the accuracy of my calculations. Here’s the reply:

Hello Bruce,

Thank you for your e-mail and I can assure you that the letter from Allianz came as a big surprise to me also. Not because I wasn’t expecting an increase from them this year, but because I know that at the end of last week when I spoke with Sr Pinheiro of Medal Seguros, they were still in discussion with Allianz and looking for a better solution. It appears that Allianz has decided, for whatever reason, that the discussion is over, and this is their proposal for their clients this year.

I can tell you that Sr Pinheiro and his team are indeed looking for alternatives, MGEN already being one of course, and I know that they held a meeting last Thursday with an alternative insurance provider, which I have been advised was very positive. I know also that Medal already has other options and that it is their commitment that no afpop Member be left without health insurance.

I will not say more at the moment because the discussions I am party to are not complete and, in any case, it is not within my scope to advise Members about insurances, but I can tell you that Sr Pinheiro and his colleagues are working hard to find solutions for those Members who can’t, or don’t want to, accept the Allianz offer. The good news is of course that the insurance is valid until the end of the year, so no-one is left uncovered until then. As soon as I have more information, I will transmit it to Members when I may know a little more about what alternative proposals there are.

Given that all who have legal (fiscal) residency in Portugal – citizens, expats, and immigrants – are covered at no cost by national health insurance, the comprehensive coverage offered by Allianz in partnership with afpop and Medal have been good buys for the money. But not at these rates–especially because the health care provider network is focused on the Algarve, Lisbon, and (to a lesser degree) Porto. Those of us living outside these areas had to rely on non-network providers. I’m waiting to see the “option/s” afpop and Medal might be offering us, instead (of Allianz) but wouldn’t be surprised if they came up with a cooperative agreement through MGEN. Medal already represents MGEN, whose online offer far surpasses the package referred to in the letter from Allianz.

We may not be in the poorhouse (yet), but our belts are getting tighter. We do, very much, love Portugal … still. But had we known then what we know now – while in the USA evaluating where we would relocate and retire – I can say for certain that we probably would have looked beyond the borders of Portugal.

Back in 1789, Benjamin Frankling reminded us that, “Nothing is certain but death and taxes,” to which I’d add “… and increases in the cost of living!”