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

If you have moved to Portugal or are planning to relocate, you have made an excellent choice. Not only is it a beautiful place to live, Portugal offers many advantages from a financial point of view. 

To make the most of your move, do not underestimate the importance of early tax and financial planning. Even if you have been living here 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 resident here, 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 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, it is possible to time your change of residency to minimise tax liabilities – and maximise opportunities – in both countries. 

See more on tax residency in Portugal

2. Your Portuguese tax bill  

New residents can enjoy significant tax benefits for their first ten years through Portugal’s ‘non-habitual residence’ (NHR) regime. To qualify, you cannot have been resident within the last five tax years and should apply through the local tax office soon after arrival.

Besides offering a fixed 20% income tax rate to those employed in ‘high value-added’ professions, NHR lets you receive some foreign income – like UK pensions – tax-free. You could also pay no Portuguese tax on gains from UK property. 

Even outside of NHR, Portugal can be highly tax-efficient for expatriates. While income is taxable at progressive income tax rates up to 48%, there are often ways to lower taxes on your investment and pension income, so explore your new options.  

Download our free guide to taxes in Portugal

3. Structures for savings and investments

A potentially costly mistake for expatriates is assuming what was tax-efficient back home is the same in Portugal. UK ISAs, for example, are taxable for Portuguese residents. 

Meanwhile, once you are resident here, you 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 who understands 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 are living 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, especially with Brexit in the picture. Look for structures that let you diversify by holding investments in multiple currencies, with 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’ 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.

See an overview of Portuguese taxes on property

6. What to do with your pensions 

If you are planning to retire in Portugal, make sure you fully understand your pension options and the tax implications before making any decisions. 

If you have a non-government UK pension, it is possible to receive pension income tax-free for ten years as a non-habitual resident. However, make sure you understand the rules as there are limitations that could inadvertently bring you into Portuguese taxation range. 

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, so regulated, personalised pensions advice is essential.

See more about your pension options in Portugal

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. 

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.