It is never too early to start tax planning, whether you are moving abroad for the first time, or moving on to another country, or returning back to your home country after years of living here in
It is never too early to start tax planning, whether you are moving abroad for the first time, or moving on to another country, or returning back to your home country after years of living here in Portugal. Advance research and planning gives you reassurance that your wealth is structured to be as tax efficient as possible in the country you are moving to, keeping tax to the minimum possible both for yourself and for your children when they come to inherit your assets.
Depending on which country you are moving to, sometimes waiting until you have moved and are tax resident in the new country removes some of the most tax effective solutions that could have been available to you.
British expatriates returning to live in the UK may be able to take advantage of their current non-UK resident status to carry out tax and wealth management planning prior to their return, so that once back in the UK they will enjoy tax advantages which cannot be achieved by UK residents. By taking advice before you leave Portugal it is possible to arrange your investable assets in a manner where you can enjoy tax free growth and income as a UK resident, irrespective of how much money you invest.
Plans don?t always work out as you expect them to. Many people move here to Portugal expecting to remain here for the rest of their lives, but many do return to their home country eventually ? perhaps because of illness, or because they miss their families and want to see the grandchildren growing up, or just to return to their roots. Spouses often choose to return after their partner?s death.
If you do end up returning to the UK for one reason or another, this won?t necessarily be something you plan far in advance. In this case you may have limited time to put the necessary appropriate tax and wealth planning arrangements in place, so to give you peace of mind you could review your financial planning now to ensure it is structured in the best possible way should an unanticipated move take place. Even if you don?t move in the end, by reviewing your tax planning now you may be able to improve your tax position in Portugal.
Even where British expatriates don?t ever return to the UK, it is often the case that their wealth does if inherited by UK residents. It then starts to be taxed under the UK rates and regulations, but you may be able take advantage of your current non-UK resident status to set it up now in such a way that it will be more tax efficient for your children and grandchildren when they inherit it in the UK.
UK inheritance tax
If you are a British expatriate, if you remain a UK domicile (as many expatriates do) then your worldwide assets will be assessed for UK inheritance tax (IHT) to be paid by the estate. If you are non UK domicile, you are liable for IHT on any assets you have in the UK.
You should take specialist advice to determine what your domicile status is and then to structure your wealth appropriately to avoid inheritance taxes, in the UK and here in Portugal if necessary. Even if you have become a non-UK domicile now, if you or your spouse ever return to live in the UK you will immediately become a UK domicile again and liable for IHT. With some wealth management structures, however, the assets fall outside the IHT net whether or not you are a UK domicile.
UK capital gains tax
If you sold a property on leaving the UK, you need to remain a UK non-resident for five consecutive UK tax years to escape UK capital gains tax (CGT). Some people believe that if they return to the UK within five years they will be liable for only a percentage of CGT, but this is not correct. If you have to return to the UK early, however, it may be possible to arrange your assets in advance to legally avoid CGT, but again, specialist advice is essential.
Many UK private pensions can now be transferred outside the UK when you move abroad into a Qualified Recognised Overseas Pension Scheme (QROPS). Once you have been resident outside the UK for five complete UK tax years your QROPS is no longer subject to UK rules or to the various taxes that can be applied on death. If you have a QROPS and do return to the UK, with advance planning you may be able to take steps to continue to avoid the taxes levied to UK pension schemes on death.
Moving to a new country
You may decide to move on to a country other than the UK. It has become far easier to move from country to country especially within the EU. Forward tax advice is essential here too. Tax regimes vary from country to country, there are different rules and tax rates, often quite complicated, and so effective tax planning is crucial to avoid being caught for high and unnecessary taxation, both on leaving Portugal and becoming resident elsewhere.
Wherever you live in the world, taxes are rising or likely to do so following the financial crisis, so tax planning is becoming even more important.
There are various legitimate tax sheltering arrangements available throughout the EU. Take specialist advice from a tax and wealth management firm such as Blevins Franks that has offices in the UK and throughout Europe.
Whatever the reason for you return to the UK (or move to a new country), reducing your tax liabilities will help preserve your wealth for your retirement and for the security of your heirs. Just don?t wait until you or your money is back in the UK, or many valuable tax planning opportunities will be lost.
By Bill Blevins, Managing Director, Blevins Franks
3rd March 2011
The 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 must take personalised advice.