Moving to Portugal is an exciting way to spend your retirement, but did you know it can also offer tax-efficient advantages?
If you are planning to live there, or have recently relocated, with careful financial planning you can make the most of tax-efficient opportunities and avoid potential mistakes.
Tax residence in Portugal
You are usually considered Portuguese tax resident after 183 days in the country, but it can be earlier if you have a permanent Portuguese home. Once you are a resident there, your worldwide income and certain gains become liable for Portuguese taxation, so understand how it will affect you and take steps to be prepared for it.
Optimising Portugal’s tax benefits
While the previous non-habitual residence (NHR) regime has ended, Portugal continues to offer tax advantages.
It just means that specialist advice is more important than ever before, since how and where you hold assets can make a significant difference. And, don’t assume what was tax efficient in the UK is tax efficient elsewhere. ISAs, for example, are taxable there, but Portugal provides its own tax planning opportunities. Holding onto previous arrangements can result in unnecessary tax.
For example, Portugal offers the potential to enjoy extremely favourable tax treatment on investments. Many expatriates benefit from holding capital in a structure similar to an offshore life assurance bond that acts as an investment wrapper to a conventional portfolio. No tax is payable on the underlying income until a withdrawal is made, when only a proportion of the profit is taxable in Portugal and the effective rate drops over time.
And when it comes to UK pensions, there can be attractive tax options for residents in a position to encash their fund, making it comparable to the previous NHR benefits.
If you’re buying luxury property, bear in mind that Portugal imposes a ‘wealth tax’ of sorts on high-value local real estate. However, you’re only liable on any Portuguese property value over €600,000 – a couple could jointly own property up to €1.2 million without paying tax.
Another key attraction is Portugal’s very benign inheritance tax regime. ‘Stamp duty’ is only charged on assets located in Portugal, the tax rate is just 10%, and spouses and descendants are exempt. Good estate planning can help ensure your legacy passes tax-efficiently to your chosen heirs.
Timing your move
It’s worth exploring the best time to sell your UK assets (property and investments). Would you pay less capital gains tax if you sold them as a UK or a Portugal resident? Talking to a cross-border financial adviser will prove invaluable as they will be up to date on both country’s tax regimes and the interaction between them.
A financially secure retirement
If you’re enjoying your retirement in Portugal, weigh up your pension options to establish which is best for you. Consider your circumstances, objectives and other accessible wealth, and the tax implications in both Portugal and UK.
It’s advisable to review your savings and investments, including the currency you hold them in. Your circumstances and goals change when you relocate, so take a fresh look at your financial planning to confirm everything is set up in the best way for your new life. Ensure your portfolio is structured around your situation, aims and risk profile, with adequate diversification to reduce risk.
Unsurprisingly, cross-border tax and financial planning is complicated, so take personalised, professional guidance to ensure you get the most of out of living in Portugal.
With decades of experience advising UK nationals moving and living overseas and an office in Portugal for 30 years, Blevins Franks has gained a deep understanding of the financial planning needs of British expatriates there. We guide you through the various aspects of setting up home in Portugal, providing holistic advice on tax mitigation, estate planning, investments and pensions. Our service is highly personal, and we’d be happy to give you the peace of mind of knowing your financial affairs are in order.
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