With early and careful planning, you can make the most of tax-efficient opportunities when moving to Portugal or buying Portuguese property.

If 2020 is the year you are planning to move to Portugal, you have made a great choice.

In the InterNations ‘Expat Destinations 2019’ survey, Portugal scored the highest in its global ‘quality of life’ index, covering factors like personal happiness, health and well-being, safety and leisure. Overall, it ranked as the top country in Europe for expatriate living and third in the world (out of 64). Meanwhile, International Living named Portugal as the best place to retire in 2020 in their ‘Annual Global Retirement Index’.

While there are clearly many benefits to living here, early financial planning is crucial. These key considerations can help you avoid costly mistakes while making the most of tax-efficient opportunities in Portugal. 

1. Where you are tax resident

You are usually considered Portuguese tax resident after 183 days here, but it can be earlier if you have a permanent Portuguese home – potentially even the day you arrive. Also, be mindful that, under UK rules, you could unintentionally trigger tax residency and come back in line for British taxes again after just 16 days’ there. Remember: you need to demonstrate settled residence in Portugal before 31 December to retain the right to remain post-Brexit.

Once you are resident in Portugal, your worldwide income and certain gains become liable for Portuguese taxation, so make sure you are prepared. 

See more on tax residency in Portugal

2. Your Portuguese tax bill  

New residents (who have not been Portuguese resident within the last five tax years) can enjoy significant tax advantages for ten years through Portugal’s ‘non-habitual residence’ (NHR) regime.

Currently, NHR offers a fixed 20% income tax rate to those employed in ‘high value-added’ professions, plus the potential to receive some foreign income – like gains from UK property and UK pensions – completely free of Portuguese taxes. 

However, the Portuguese government has signalled it will water down tax benefits for new non-habitual residents from 31 March once the 2020 budget is confirmed. 

Read 'Portugal to start taxing foreign pensions under NHR'

Even outside of NHR, Portugal can be tax-efficient, including the potential to enjoy extremely favourable tax treatment on capital investments.  

Download our free guide to taxes in Portugal

3. Structures for savings and investments

It can prove costly to assume what was tax-efficient in the UK is the same in Portugal. ISAs, for example, lose their tax-free status once you are no longer UK resident and become taxable in Portugal. When relocating, it is vital to take a fresh look at your financial planning to make sure you are suitably diversified and everything is set up in the best way for your new circumstances. Explore how you can take advantage of newly available opportunities.

4. The right currency mix for you

Once you are living in Portugal and spending euros daily, keeping savings in sterling makes your income vulnerable to exchange rate fluctuations. Look for structures that let you diversify by holding investments in multiple currencies, with flexibility to choose the currency of withdrawals.

5. Buying and selling property 

When is the best time to sell your UK property or buy a Portuguese home to limit capital gains tax and stamp duty in both countries? Should you keep your UK property? Will your new home attract Portuguese wealth tax? Understanding the answers could save thousands, so take time to establish your best approach.

See an overview of Portuguese taxes on property

6. What to do with your pensions 

If you are planning to retire in Portugal, thoroughly explore your pension options. Many British expatriates benefit from transferring UK pension funds into a Qualifying Recognised Overseas Pension Scheme (QROPS), or by reinvesting a lump sum in tax-efficient arrangements for Portugal.

However, there is no one-size-fits-all solution for a secure retirement, so regulated, personalised pensions advice is essential. 

Beware that pension options for UK expatriates may change after the Brexit transition ends in December 2020.

See more about your pension options in Portugal

7. How your legacy will be passed on 

Portuguese succession law and tax work very differently from the UK and can disadvantage certain heirs if you are not prepared. ‘Forced heirship’ rules, for example, could automatically pass half 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. 

If you are a UK national, you could remain UK-domiciled – even after living abroad for years – putting your estate in the firing line for 40% UK inheritance tax. 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. 

Five things you should know about estate planning in Portugal

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 – ideally before you move – for the best results.

Blevins Franks has decades of experience supporting expatriates in Portugal with cross-border tax planning, pensions, estate planning and investment management advice. With advisers living and working throughout Portugal, we have in-depth, personal knowledge of the Portuguese tax regime and how it interacts with UK taxation. 

Contact us to talk to discuss your Portugal plans

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; individuals should seek personalised advice.