There can be tax and estate planning advantages to living in Portugal. Its non-habitual resident regime can offer even more benefits.
If you are thinking of moving abroad to improve your quality of life, then you certainly need to consider Portugal. Portugal took top place in the Quality of Life Index in the “Expat Destinations 2017” carried out by InterNations. It also came first for friendliness and feeling welcome.
Our local advisers have lived in Portugal for many years and can vouch for all the benefits. Besides the lifestyle it also offers generous tax benefits that outshine many of its European neighbours.
Taxation in Portugal
When you become resident in Portugal, you are liable to Portuguese tax on worldwide income and, to some degree, on capital gains, as well as for some ancillary taxes.
Portuguese tax is levied according to de facto (actual physical) residence. You are tax resident if you are in the country for 183 days a year. You may also be deemed to be resident if you have a “permanent home” available to you as at 31st December. You are considered tax resident from the day you arrive on a permanent basis.
If you are moving from the UK you also need to understand how the UK Statutory Residence Test could continue to apply to you, and how the double tax treaty determines where you pay tax if necessary.
The top rate of income tax in 2017 is 48%. An additional “solidarity tax” will hopefully be abolished next year. Investment income is taxed at 28% (increasing to 35% if the assets are held in a ‘blacklisted’ jurisdiction).
You need a thorough understanding of the Portuguese tax system and how it applies to you, so you can then establish what steps you can take to improve your tax liabilities – there are often ways to lower taxes on your investment and pension income.
How Blevins Franks can help with your tax planning
Non-Habitual Resident regime (NHR)
Portugal offers a special Non-Habitual Resident regime for new residents, which provides beneficial tax treatment for your first ten years. There is a special tax rate of 20% applicable to employment and self-employment income derived from certain ‘high added value’ activities, and a potential tax exemption for most foreign-source income, provided certain conditions are met.
This is certainly worth exploring if you are moving to Portugal, but take professional, personalised advice to establish how it works and what would be best for you.
It is important to review your estate planning for Portugal.
Inheritance tax (“stamp duty”) is relatively benign here. The rate is just 10%, it only applies to assets in Portugal and spouses and children are exempt.
If you remain a UK domicile, which is often the case, your worldwide estate remains subject to UK inheritance tax even if you have lived in Portugal for many years. With appropriate planning you may be able to reduce this tax burden for your heirs.
Be aware that Portuguese succession law applies ‘forced heirship’ rules, where a minimum proportion of your estate must pass to specific heirs. You can avoid this by using EU succession regulation ‘Brussels IV’ to opt for the law of your country of nationality to apply instead. This must be done through your will. Take advice first to understand how this would affect your family.
Pensions and investments
On moving to Portugal you should review your savings and investments to ensure they are structured in the most suitable way for your new circumstances and objectives. Check that you are suitably diversified and not too overweight on UK assets. You also want them to be structured in the most tax-efficient way for Portugal, and to meet your estate planning wishes. So overall, it may be time for some restructuring.
The UK now offers many options for how you take your pension funds. Weigh up all the options, how they work for you, and the tax implications in Portugal – there may be opportunities for Portuguese residents.
It is never too early to start planning. Blevins Franks has a presence in both the UK and Portugal, and can provide highly personalised, cross-border wealth management planning and would be happy to help you prepare for your new life in Portugal.
Visit our Portugal page and contact one of our local offices.
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.