What do we know about how Brexit might affect taxation and estate planning for British expatriates?
Although months have passed since the British public voted to leave the EU, we still do not know much more about what the future holds. This uncertainty is particularly unsettling for expatriates, who may worry that their current life abroad could change.
When it comes to taxation and how you have structured your legacy for your heirs, should you be worried? We expect nothing will become clearer until formal negotiations begin, but for those with appropriate arrangements in place, these are areas where Brexit is unlikely to cause too much disruption.
Will your taxes change?
The way in which Portuguese residents are taxed is determined by local tax legislation, not the EU. For expatriates, taxation also depends on the double tax treaty between Portugal and the UK, which works independently of the EU.
So whether Britain is in the EU or not is generally irrelevant to the taxes you pay. However, if you leave Portugal after Brexit, there are situations where you may be taxed differently as a non-EU resident.
Capital gains tax is one example. If you sell your main home in Portugal, you will not be taxed on gains so long as you reinvest in another home in Portugal or an EU/EEA country that has a double tax treaty in place. So if you sell in Portugal to buy in Britain once the UK leaves the EU (and is not an EEA member), 50% of the gain is taxable at the scale rates of tax. Once you cease to be resident in Portugal, the entire gain is taxable. For those planning to return to the UK, therefore, seeking advice early is essential to minimise tax liabilities.
Will non-habitual residency change?
If you have taken advantage of the tax benefits of Portugal’s non-habitual residents (NHR) scheme, or are thinking about doing so, you can be reassured that it will not be affected by Brexit. As the NHR regime is not dependent on nationality and is unconnected to the EU, Britons can continue to both apply and benefit post-Brexit.
Of course, to be eligible for NHR you need to meet Portuguese residency rules. These are likely to change for Britons once the UK leaves the EU, as British citizens will no longer have the automatic right to reside in Portugal as EU nationals. However, as NHR was set up to attract wealthy foreign nationals – including those outside the EU – it is likely that Portugal will continue to welcome suitable British applicants.
Will your estate planning be affected?
Many Britons resident abroad have applied the new EU regulation, ‘Brussels IV, to specify that they want UK law to override local succession law when it comes to their legacy. For expatriates in Portugal, this means they will not be bound by the Portuguese forced heirship rules that determine what portion of their estate goes to their direct family.
The good news is that, although Brussels IV is an EU regulation, it also applies to countries outside the bloc. As a result, even after Brexit, you can still nominate the appropriate British law to apply to your will as a ‘third party’ country.
What about inheritance taxes?
While the Portuguese tax regime does not include inheritance tax, there is a 10% stamp duty on assets located in Portugal. This applies regardless of nationality or country of residence, so nothing changes with Brexit.
Be wary that you may still be liable for UK inheritance tax, even after many years of living abroad. If you are seen as UK domiciled, your estate could attract both Portuguese stamp duty and UK inheritance tax. While there is no specific UK/Portugal tax treaty on inheritance tax, taxes already paid in one country can be deducted against taxes due in the other. As with other tax arrangements, there is no reason for this to change once Britain leaves the EU.
The best way forward
Even though Brexit poses no immediate threat to your current tax position or estate planning, you should regularly review your financial planning to make sure it keeps up with your changing circumstances, aims and objectives. Brexit is just one more incentive to make sure you do this.
After all, taxation and estate planning are highly complex areas. For expatriates, they are even more complicated due to the cross-border implications so specialist, personalised advice is essential. An adviser can also look at your financial planning as a whole and recommend tax-efficient opportunities to structure your pensions, savings and investments.
There has never been a better time to build a relationship with a locally-based adviser who can keep you up-to-date with Brexit developments and find the best solutions tailored for you as an expatriate in Portugal.
Any questions? Ask our financial advisers for help
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.