The PPR tax benefits make these products very attractive to most Portuguese people. Know what they are.
The tax benefits of PPR can be an incentive for anyone thinking of saving for retirement (but not only). And the tax savings of these products are not only for the contribution period, but also at the time of redemption. Find out about all the advantages of subscribing to a Retirement Savings Plan.
PPR tax benefits during the contribution period
In Retirement Savings Plans (PPR)
The amount of the tax benefit varies depending on the age of the subscriber. From a tax point of view, PPR are more profitable up to age 35as they allow higher deductions.
The amount you pay annually to feed your PPR is deductible by the IRS at 20%. O maximum amount of deduction is that it varies according to age:
- Under 35 years old: you can deduct up to 400 euros if you apply 2000 euros in the PPR;
- Between 35 and 50 years old: the maximum limit allowed is 350 euros, if applicable 1750 euros;
- From 50 years old: you can deduct up to 300 euros, if you apply 1500 euros.
In the Public Capitalization Scheme (State PPR)
In the public capitalization scheme, retirement savings are made through Retirement Certificates.
These also have an IRS tax benefit, which corresponds to a 20% deduction of the amount invested in retirement plans managed by the public capitalization system.
And here, too, age counts: up to 35 years the maximum deduction reaches 400 eurosbut for those who have over 35 years the deduction limit goes down to the 350 euros??
PPR tax benefits upon redemption
When you request a refund of your PPR, an operation better known as redemption, you will also have a tax benefit.
In this situation, the exit tax benefit consists of at a lower IRS rate to which savings and capital income are taxed. This fee may vary depending on how the refund is made: in one lump sum or in installments.
Thus, instead of the 28% tax applied to other savings products, PPR benefit from a reduced rate of 21.5%, if you keep the investment for up to five years. This rate can reach 17.2% if you serve between five and eight years. And after eight years, the rate is 8.6%.
The lowest tax rate (8.6%) also applies to the early redemption of the PPR, whenever the following situations are met (provided for by law??
- Retirement due to old age;
- Long-term unemployment of the participant or any member of their household;
- Permanent incapacity for work or of any member of your household;
- Serious illness or that of any member of your household;
- From 60 years of age;
- Attendance or enrollment of the participant or any member of their household in vocational or higher education, when generating expenses in the respective year;
- Use for the payment of mortgage loan installments, of credit agreements intended for the participant’s own and permanent housing;
- Death of the participant or death of the spouse (if the PPR is a common property).
Already if reimbursement is paid in the form of rentthat is, of regular installments, is applied the same pension taxation regimewhich concerns IRS category H income.
Early redemption of the PPR with penalties
The PPR is a complementary way of saving for retirement. Therefore, what is normal to happen is this to be redeemed when you reach the age of retirement due to old age.
If you redeem your PPR in advance outside the conditions set out in the law, listed above, you will have to return the tax benefit you have already enjoyed. Redeeming the PPR ahead of time means that will have to restore the amount of tax benefits enjoyed, plus 10% for each year that elapses??
One way to remedy this painful situation is to decide from the outset not to enjoy the tax benefit and, in that case, you cannot be penalized when you redeem the money. To this end, you cannot deduct the deliveries you make for the PPR at the IRS. It suffices that, at the time of delivery of the declaration, eliminate from the fields that already appear pre-filled the values related to these annual deliveries.
Thus, you can redeem the PPR whenever you want and use the money you saved for whatever purpose you want. It is only subject to redemption tax, which varies depending on the length of stay in the PPR. We have more detailed information about PPR redemption in this article:
Article published in October 2019. Updated in December 2022.