While ISAs are a valued savings arrangement in the UK, they lose their essential tax advantages when you move abroad. Here we look at the tax implications in Portugal as well as other considerations.
ISAs (individual savings accounts) were introduced in 1999 to replace PEPs (personal equity plans) and TESSAs (tax-exempt special savings accounts) to encourage more people to save or invest, with the tax-free returns offering a strong incentive.
Today, around 22 million people have ISAs, with a total market value of £725 billion. While there is a limit to how much you can contribute annually, the value can grow over time thanks to compound interest on cash ISAs or dividends and capital gains made in stocks and shares accounts. Over 250,000 people hold at least £250,000 in their ISA, with over 3,000 of them worth £1 million or more.
It’s likely that you have at least one ISA, you may even have a large portfolio spread over different accounts. While you may be satisfied with their management and returns, what happens when you move to Portugal? Can you keep your ISAs? And should you keep your ISAs?
Owning ISAs as an expatriate
You are not obliged to sell your ISAs when leaving the UK, and you can continue to own them as a non-UK resident.
However, you cannot contribute any more funds into them or set up new accounts. Only UK residents with a UK address can do that.
Tax implications
The tax-free income and growth ISAs offer in the UK is very welcome, but once you move abroad, the tax-free status no longer applies and you lose the tax advantages. The interest, capital gains and dividends will be subject to tax in your new country of residence, according to its regulations.
If you haven’t yet left the UK and want to close your ISAs to reinvest the capital in your new property or in tax-advantageous investment arrangements for Portugal, it is beneficial to close your ISAs before you depart. You will not have to pay tax on the gains if you sell while still a UK resident.
In Portugal, interest income, capital gains and dividends are generally taxed at a fixed rate of 28% in Portugal. You have the option to use the scale rates of income tax, which would then apply to all your investment income.
Portugal taxes residents on a worldwide basis. Some British expatriates mistakenly think that since ISAs are tax free in the UK, they don’t need to be declared here, but that is not the case. Remember that the global exchange of information under the Common Reporting Standard means that your local tax authority is informed about your overseas assets and income each year.
If your share ISAs are managed portfolios, it may be difficult for you to determine all the gains realised within them each year. The investment manager may not be able to supply much data since the gains are not taxed in the UK.
The more different assets you have – for example, if you own many different ISAs as well as shares owned directly and/or other investment funds, – the more complicated it is to submit your annual tax returns.
There is no ‘inheritance tax’ as such in Portugal. While stamp duty is applied when assets pass on death, it only applies to Portuguese assets, and spouses, descendants and ascendants are exempt.
Tax planning
If you are assessing whether to continue holding your ISAs or to reinvest the capital elsewhere, it is a good opportunity to consider consolidating your investment capital. You can, for example, hold a wide range of investment funds within a life assurance policy. This will make it much easier for you to keep track of your investments and to fulfil your tax declaration obligations.
These arrangements can also provide significant tax benefits in Portugal, as well as estate planning and probate advantages.
If you have not left the UK yet, it usually makes sense to sell your share ISAs before you change your tax residence to avoid capital gains tax. (Care needs to be taken, though, if you are only temporarily moving outside of the UK and specialist advice should be sought.)
Seek personalised cross-border advice for Portugal, so that you hold your investment capital in the most tax-efficient manner for yourself and your heirs in future.
The 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; an individual should take 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
