We usually encourage relocating to Portugal, as we know first-hand the benefits of living here, but understand there are many reasons why you may be considering returning to the UK. It may be part of your retirement plan or you find that circumstances unexpectedly draw you back home.
Whatever the reasons, once you realise you will move back, give yourself enough time to review and reorganise your financial affairs. Even if you have no plans to return at present, it’s worth bearing the possibility in mind when setting up financial arrangements, to keep them as flexible as possible.
Estate planning and UK inheritance tax (IHT)
Review your estate planning before you relocate, taking inheritance taxes, succession law, your will and any trust arrangements into account.
Under the previous UK domicile rules, returning UK nationals become subject to UK inheritance tax on worldwide assets even if they had acquired a new domicile of choice. From April 6 this year, the domicile regime is replaced by one based on long-term residence.
In summary, if you have lived abroad for 10 years or more when you return, your UK inheritance tax liability could be limited to UK-based assets for up to 10 years – assets owned outside the UK would be exempt for this period. With extensive strategic planning, the UK could be an IHT-free zone for 10 years.
Timing your move
It is better to plan your return date around your tax planning rather than the other way around.
Before buying your UK home and relocating, allow enough time to review and adjust your wealth management and set up new arrangements. The more time you have for advance planning, the better.
Your finances should be designed to suit your circumstances and tax residence. Assets and structures taxed beneficially now as a Portugal resident may not work as favourably in the UK. Conversely, you could find more tax-efficient opportunities in the UK once you regain British residency.
Your residence status will affect the tax implications for any income, as well as selling or moving any of your financial interests. While generally you cannot decide where you are resident for tax purposes, you could plan to transition at a time that will minimise tax liabilities in both countries.
When will you be seen as a UK resident?
You could potentially be considered a UK resident before you even leave Portugal. Even if you have been overseas for many years, you may still have links to the UK that can trigger residency and bring you into UK liability much sooner than you think.
For example, if you still own a UK property or buy one before moving back, you could become resident before you arrive in Britain. Once you cease to use your foreign property as your main home, you could be seen as a UK resident straight away, even if you keep your Portuguese property.
If you are likely to spend time in the UK preparing for your permanent return, be careful not to accidentally bring forward the date of your UK tax residence status.
Buying and selling assets
Before buying a new UK home, understand how the local and UK tax rules might restrict or eliminate the availability of main home reliefs. When it comes to capital gains tax, it may be much more tax efficient to sell or buy when resident of one country over the other. You might find it beneficial to either bring forward or delay selling or transferring any assets according to your tax residence.
Moving from an EU country to a non-EU one may mean you no longer qualify for preferential tax treatment. While Portugal exempts the main home from capital gains tax if you use the proceeds to buy your new main home, it needs to be in the EU or EEA.
It’s worth noting that the UK has increased stamp duty on second homes and investment properties from 3% to 5%. If you buy the UK property you intend to live in while still owning a main home abroad, the UK purchase will be classed as second home.
Pensions
If you transferred your UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS), while living abroad, or made pension decisions based on tax-compliant opportunities in Portugal, take specialist advice on the best way forward.
Early planning
Ideally, plan your tax and financial arrangements before you even set your departure date. You will benefit from speaking to an adviser with in-depth knowledge of both tax regimes to ensure you get the best out of your finances for your new life ahead.
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 are advised to 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.
