If you are returning to the UK, it is important to plan your move carefully in advance, and review all the tax and wealth management considerations before you leave Portugal. Do not risk undoing the tax advantages you secured by previous tax planning.
We normally encourage people to move to Portugal, championing the various benefits of living here. However I also know there are situations where it is right for someone to move on from Portugal. Many British expatriates reach a time when they want to, or need to, return to the UK. Or perhaps you want to experience living in a new country. Either way, you need careful planning before you leave Portugal.
You may think that since the UK is your home country moving back is easy. But from a tax and financial planning perspective, various aspects can trip you up.
It is important to plan your move carefully in advance, and review all the tax and wealth management considerations before you leave Portugal – even before you decide on the date of departure where possible. Do not risk undoing all the tax advantages you may have secured by previous tax planning.
Tax residency
Portugal now uses the split year approach to tax residence.
If you leave Portugal during the first half of the year, you should not be regarded as resident in Portugal for the rest of the year. You will be taxable for the period when Portugal is your habitual residence. If you leave Portugal during the latter half of the year, you are likely to be regarded as resident in Portugal until your date of departure.
Split year treatment became statutory in the UK in 2013, as part of the Statutory Residence Test. You need to understand the test to determine when you become UK resident for tax purposes – it may be sooner than you think. If you buy or rent a UK property to use as a base when visiting the UK while planning your move, this could affect your UK residence status.
Tax considerations
You will want to reduce tax liabilities in both countries, so this is an area that needs strategic planning and advice. You may need to take action at the appropriate time to, for example, crystallise gains, realign investments, establish tax planning structures etc.
Where possible it is better to plan your return date around your tax planning. It is usually beneficial to complete any necessary arrangements in the UK tax year before your return.
Capital gains tax is an important consideration when moving from one country to another. Is it more beneficial to sell Portuguese assets while still in Portugal, or should you wait until you are UK tax resident?
In the UK capital gains are charged at 18% and 28%, with an £11,100 allowance.
In Portugal, residents selling property pay tax on 50% of the gain, which is added to your other income for the year and taxed at the income tax scale rates of up to 48%. If the property was your main home and all the proceeds are reinvested in another main home in the EU/European Economic Area the gain is exempt, but there are time limits.
In the UK it depends on whether the property qualifies for Principal Private Residence relief.
Non-habitual residents
If you are resident under Portugal’s Non-Habitual Resident (NHR) regime, you will be benefitting from many tax advantages. Remember though that other than employment income from certain high value activities, it is foreign source income that receives the tax exemptions. So if you sell a Portuguese property, it will be fully liable to capital gains tax (as above).
You need to consider how your investments will be taxed as a UK resident. If your tax planning was set up to take advantage of the Portuguese regime, you now need to consider what is tax efficient in the UK and adjust as necessary.
Estate planning
Your estate planning will need a thorough review, to consider inheritance taxes, succession law, probate etc. If you have any UK inheritance tax planning structures set up on the basis that you had a domicile of choice in Portugal, you need to seek specialist advice.
Pensions
If you transferred your UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS), you should seek expert advice on the best way forward. If you made pension decisions based on Portuguese taxation, you need to establish what you should do once you are liable to UK taxation.
It is important to seek guidance from an adviser with in-depth knowledge of both tax regimes. Whatever the reason for your return to the UK, it is a good opportunity to review and improve the tax efficiency of your assets as well as your estate planning.
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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 is advised to seek personalised advice.
