If you have moved to Portugal or are planning to relocate, you have made an excellent choice. Not only is it a beautiful and beneficial place to live, Portugal also offers advantages from a financial point of view, particularly if you are retired.
To make the most of your move, don’t underestimate the importance of early tax and financial planning. Even if you have been living here a while, regularly review your arrangements to confirm they are up to date.
-
Where you are tax resident
Once you become resident here, you are liable to Portuguese tax on worldwide income and certain capital gains.
You are usually considered tax resident after 183 days in Portugal, but it can be earlier if you relocate with the intention of making it your home. Be mindful of the residency rules in your country of origin. Under UK rules, you could unintentionally trigger tax residency after just 16 days there.
If you plan ahead and have flexibility, you can time your change of residency to minimise tax liabilities.
-
Your Portuguese tax bill
While Portugal’s non-habitual residence (NHR) regime has closed for new applicants, don’t let that put you off choosing Portugal as your retirement destination – it can still be tax-efficient for retirees.
Although income tax rates range from 13.25% to 48%, interest and other investment income is taxed at a flat 28%. There are often ways to lower taxes on your investment and pension income, so explore your options.
-
Structures for savings and investments
A potentially costly mistake for expatriates is assuming what was tax-efficient back home is the same in Portugal. UK ISAs, for example, are taxable for Portuguese residents.
Meanwhile, once you are resident here, you gain access to opportunities to enjoy favourable tax treatment on capital investments.
When relocating, taking a fresh look at your financial planning is crucial to make sure everything is set up in the best way for your new circumstances. Talk to a locally-based adviser with in-depth understanding of the Portuguese tax regime and who can recommend tax-efficient solutions for your wealth.
-
The right currency mix for you
Once your expenses are in euros, keeping savings and investments in sterling makes your income vulnerable to exchange rate fluctuations. Look for flexible structures that let you diversify by holding investments in multiple currencies.
-
Buying and selling property
Another issue to consider early is the tax implications of buying and selling property. When is the best time to sell your current property, in the UK or elsewhere, or buy a Portuguese home to limit taxes in both countries? Will you have to pay Portuguese ‘wealth tax’ (levied on high value local property) on your new home? How can you make the most of available reliefs and allowances? Understanding the answers could save thousands in unnecessary taxes, so establish your best approach.
-
What to do with your pensions
If you are planning to retire in Portugal, take time to understand the pension options available to you as an expatriate and the tax implications before making decisions.
Once you become tax resident in Portugal, most UK pension income (including lump sums) becomes taxable here and no longer liable for UK tax. The one exception is government service pensions which continue to be taxed in the UK.
Many British expatriates benefit from transferring UK pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS), or by reinvesting a lump sum in more tax-efficient arrangements for Portugal. In specific circumstances, some types of UK pensions can be encashed at attractive tax rates in Portugal.
There is no one-size-fits-all solution for a secure retirement, each option needs to be assessed according to your circumstances, objectives and risk tolerance. Regulated, personalised pension advice is essential.
-
How your legacy will be passed on
Portuguese succession law and tax can disadvantage certain heirs if you are not suitably prepared. Unless you take action, ‘forced heirship’ rules could automatically pass a proportion of your worldwide estate to your immediate family, whatever your intentions. Spouses and ascendants/descendants are exempt from the Portuguese version of inheritance tax (‘stamp duty’), but other heirs – including stepchildren and siblings – could be liable for 10% when receiving Portuguese assets.
UK nationals often remain in the firing line for 40% UK inheritance tax. It is currently determined by domicile and, in any case, UK assets always remain liable. Good estate planning can ensure your legacy goes to your chosen heirs without attracting more tax than necessary.
With careful planning, you can significantly reduce your tax bill and have the financial peace of mind to fully enjoy your new life in Portugal. However, cross-border taxation is complicated, so take personalised, professional guidance for the best results.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
By Christopher Moore, Partner, Blevins Franks
