It could be some time before we get clarity on how the UK will leave the EU and how their future relationship will evolve. In the meantime we look at how Brexit could affect your tax and estate planning in Portugal, as well as your investments and pensions.
It could be some time before we get clarity on how the UK will leave the EU and how their future relationship will evolve, but in the meantime we can take a look at how Brexit could affect your tax and estate planning in Portugal, as well as your investments and pensions.
The dust has settled a little on the UK’s referendum and we are getting used to the idea that the UK will no longer be an EU member. There has been much speculation among British expatriates about how this will affect them, but unfortunately we do not have much more concrete information today than we had back in June.
UK Prime Minister Theresa May has stated that “Brexit means Brexit”. So we know the UK will leave the EU, but we do not yet know when, or how, or the implications for freedom of movement of people and capital. The timescales are likely to be considerable even once Article 50 has been invoked – which Mrs May has said will not happen before next year – and will involve extensive negotiations at EU and individual country level.
How you are taxed in Portugal is determined by the local tax legislation, which applies to everyone resident here, and the UK/Portugal double taxation treaty. Such treaties are negotiated between two countries and are independent of the EU. So generally speaking, your tax situation will not change.
There are a couple of situations where taxation is different for non EU/EEA residents, which may affect you if you leave Portugal after Brexit. For example, the gain on a sale of your main home in Portugal is exempt from capital gains tax if the proceeds are re-invested in another main home in Portugal or the EU/EEA (provided there is an appropriate double tax treaty). If your new property it outside the EU/EEA, 50% of the gain is taxable at the scale rates of tax.
Many UK nationals are taking advantage of the tax benefits of Portugal’s non-habitual residence regime. This is not based on nationality and is not an EU agreement, so will continue after Brexit. Of course you have to be able to be resident here to be eligible, but since the regime was established to attract wealthy foreign nationals to live here, we expect Portugal to continue to welcome suitable British applicants.
UK domiciles living in Portugal will continue to be liable to Portuguese stamp duty and UK inheritance tax, as now. The new rules on the taxation of trusts introduced in January 2015 continue to apply.
The EU succession regulation “Brussels IV” allows foreign nationals living here to opt for the succession law of their country of nationality to apply instead of Portugal’s forced heirship succession law. Although this is an EU law, it applies to third party nationals as well ¬¬– it is not determined by nationality – so Brexit will not affect British expatriates in Portugal.
Sterling dropped significantly against the Euro. When and to what degree it will rise in the short term remains to be seen, but the weaker pound puts UK exporting companies at a competitive advantage, which creates opportunities for your fund managers.
It is worth reviewing your investment portfolio to make sure it is spread across different markets and currencies, and is not overly reliant on one market such as the UK. It should be well-suited to your needs and risk profile and have a multi-currency facility to give you flexibility in how you receive withdrawals.
UK based money purchase pension schemes can be ‘drawn down’ or withdrawn completely if you are aged 55 or over. If you are Portuguese resident for tax purposes and have non-habitual resident status, you could potentially withdraw your pension tax free in Portugal. For other residents taxation depends on your situation, but there may be reductions depending on how long the fund has been held.
There have been suggestions in the UK media that, post-Brexit, rules could be changed so that withdrawals by non-UK residents could be taxed by HM Revenue & Customs. This has not been confirmed, but if it is a concern for you it may be worth acting under current rules.
Residence and healthcare
Residency and healthcare rules remain unaltered at this stage. It is possible that UK nationals may have to apply for visas in future, but that is not clear at this stage. Some British expatriates are considering applying for Portuguese citizenship, which is an option you may consider.
There is good reason to anticipate bilateral agreements between the two countries in due course to protect their nationals’ interests. It is encouraging that Theresa May said early on that she wanted to be able to guarantee the legal status of British nationals living in Europe and EU nationals living in the UK. Likewise Portuguese Prime Minister, António Costa, said he will do everything to ensure all the rights of the Portuguese community in the UK are guaranteed, along with those of British citizens who live, visit or invest in Portugal.
Finally, Brexit will not change the climate – people living in Portugal will continue to enjoy the sun and lifestyle here and people in the UK will continue to talk about the rain.
Contact a local adviser in Portugal
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 is advised to seek personalised advice.