With early and careful planning, you can make the most of tax-efficient opportunities when moving to Portugal or buying Portuguese property.
Moving to Portugal is an excellent choice. Not only is it a beautiful and beneficial place to live, but Portugal also offers advantages from a financial point of view, particularly if you are retired.
There may be more advance planning and paperwork involved for UK nationals since Brexit, but most are still able to achieve their dream of retiring in Portugal.
To make the most of your move, do not underestimate the importance of early tax and financial planning. Even if you have been living there a while, you should regularly review your arrangements to make sure they are up to date.
These seven key considerations can help you avoid costly mistakes and take advantage of tax-efficient opportunities available in Portugal.
1. Where you are tax resident
Once you become a resident there, you are liable to Portuguese tax on worldwide income and certain capital gains, as well as for some ancillary taxes, so you need to be prepared for this.
You are usually considered a tax resident after 183 days in Portugal, but it can be earlier – potentially even the day you arrive – if you relocate with the intention of making it your home. Also, be mindful of the residency rules in your country of origin. Under UK rules, for example, you could unintentionally trigger tax residency and come back in line for British taxes again after just 16 days there.
If you plan ahead and have flexibility, you can time your change of residency to minimise tax liabilities and maximise opportunities in both countries.
2. Your tax bill after moving to Portugal
Unfortunately, Portugal’s non-habitual residence (NHR) regime has now closed for new applicants, but don’t let that put you off choosing Portugal as your retirement destination – it can be highly tax-efficient for expatriates.
While the scale rates of income tax range from 13.25% to 48% (for income over €81,199), interest and other investment income is taxed at a flat 28%. And there are often ways to lower taxes on your investment and pension income, so explore your new options.
3. Structures for savings and investments
A potentially costly mistake for expatriates is assuming that what was tax-efficient back home is the same as that in Portugal. UK ISAs, for example, are taxable for Portuguese residents.
Meanwhile, once you are a resident of Portugal, you will gain access to opportunities to enjoy extremely favourable tax treatment on capital investments.
When relocating, taking a fresh look at your financial planning is crucial to make sure you are suitably diversified and everything is set up in the best way for your new circumstances. Talk to a locally-based adviser with in-depth understanding of the Portuguese tax regime – including its interaction with UK rules – and who can recommend tax-efficient solutions for your assets and wealth.
4. The right currency mix for you
Once you live in Portugal and your expenses are in euros, keeping savings and investments in sterling or another currency makes your income vulnerable to exchange rate fluctuations. Look for structures that let you diversify by holding investments in multiple currencies, with the flexibility to choose the currency of your withdrawals and convert when rates are favourable.
5. Buying and selling property
Another important issue to consider early is the tax implications of buying and selling property. When is the best time to sell your current property, in the UK or elsewhere, or buy a Portuguese home to limit capital gains tax and stamp duty in both countries? Will you have to pay Portuguese ‘wealth tax’ (levied on high-value local property) on your new home? How can you make the most of available reliefs and allowances? Understanding the answers could save thousands in unnecessary taxes, so take care to establish your best approach.
6. What to do with your pensions
If you are planning to retire in Portugal, make sure you fully understand the pension options available to you as an expatriate and the tax implications before making any decisions.
After moving to Portugal and becoming a tax resident, most UK pension income (including lump sums) becomes taxable there and no longer liable for UK tax. The one exception is government service pensions which continue to be taxed in the UK.
Many British expatriates benefit from transferring UK pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS), or by reinvesting a lump sum in more tax-efficient arrangements for Portugal.
Ultimately, there is no one-size-fits-all solution for a secure retirement, each option needs to be assessed according to your circumstances, objectives and risk tolerance. Regulated, personalised pensions advice is essential.
7. How your legacy will be passed on
Portuguese succession law and tax can disadvantage certain heirs if you are not suitably prepared. Unless you take action, ‘forced heirship’ rules could automatically pass a proportion of your worldwide estate to your immediate family, whatever your intentions. Spouses and ascendants/descendants are exempt from the Portuguese version of inheritance tax (‘stamp duty’), but other heirs – including stepchildren and siblings – could be liable for 10% when receiving Portuguese assets.
UK nationals often remain in the firing line for 40% UK inheritance tax. It currently determined by domicile and in any case assets owned in the UK (property, investments etc) always remain liable. Similar liabilities can apply for other nationalities. Good estate planning can ensure your legacy goes to your chosen heirs without attracting more tax than necessary.
With early, careful planning you can significantly reduce your tax bill and have the financial peace of mind to relax and fully enjoy your new life in Portugal. However, cross-border taxation is complicated, so take personalised, professional guidance with Blevins Franks – ideally before you move – for the best results.
Contact us to talk to discuss your Portugal plans
