Are you planning to move to Portugal? As someone who has lived here for 15 years I can tell you you’ve made a good choice. It is a beautiful place to live, with friendly people, stunning scenery, good food, culture and entertainment all contributing to a very enjoyable and beneficial lifestyle. Portugal also offers many advantages from a financial point of view.
Here is a general overview of the key financial considerations for UK nationals of relocating to Portugal. It is also useful for those already living here.
1. Tax residency and obligations
You need to establish what makes you resident in Portugal for tax purposes. If you meet the residency criteria, then you are liable for Portuguese tax on your worldwide income and gains. There is an exception, however, which is if you qualify for the Non Habitual Resident scheme for new arrivals, in which case income not remitted to Portugal can be exempt.
You also need to understand the UK tax residence rules to make sure you do not inadvertently find you are resident in the UK for tax purposes – it is easier than you may think.
2. Your home
Your home is likely to be among your most important assets. If you own property in the UK and/or in Portugal, which do you sell, when and why? What is the best plan to limit or avoid UK or Portuguese capital gains tax? Appropriate, timely advice, will avoid common pitfalls.
3. Notifying the tax authorities
If you have not yet left the UK, advise HM Revenue & Customs of your departure date on Form P85 (available from local tax offices or www.hmrc.gov.uk).
You then need to make yourself known to the Portuguese tax authorities and submit income tax returns each year.
4. Structuring your assets to minimise tax
Taxes in Portugal are higher than they used to be, but don’t let this put you off living here. With specialist advice you can structure savings, investments and pensions to be tax efficient.
Do not presume that what was tax efficient in the UK is tax efficient in Portugal. You will probably need to vary existing arrangements with those designed for Portuguese residents.
5. Bank accounts
If you retain any UK bank accounts, the bank interest will be taxable as a Portuguese resident. To receive UK bank interest gross you can usually submit Form R105 to your UK bank.
Many British expatriates keep their savings and investments in Sterling. This puts income at the mercy of exchange rate fluctuations. A sensible rule of thumb is to match your assets to your liabilities, so if your long-term spending will be in Euros you should consider holding an appropriate amount of your assets in Euros to reduce currency risk. If you may return to the UK in the future, it is often wise to have diversification in your assets, including currencies.
There are usually ways to improve your private pension arrangements to make them work better for you when living here. Portugal in fact can offer considerable tax advantages for pensions, depending on your circumstances.
It is vital that you receive specialist advice before you take any pension decisions. There are various options for your UK pension funds, and each has different implications for your long-term income and tax payable.
8. Inflation and your long-term security
Inflation will reduce the spending power of your savings over your retirement years. It is essential that you take action now to protect your wealth in real terms, so that you can enjoy the standard of living you are used to throughout retirement.
Your investment strategy should be specifically designed around your circumstances and objectives. Having moved to a new country, you now need to review your strategy to see if it needs to be adjusted for your new life in Portugal.
10. Estate planning
It is important to review your estate planning when you move to a new country. Your estate planning arrangements need to take both local and UK law and tax into account. Ensuring that assets pass to the right beneficiaries at the right time, with the minimum of administration or taxation, can be a complicated process. It is important to undertake a succession planning health check, with help of a specialist wealth manager.
Taking advice from a professional tax planning and wealth management specialist is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you have established what all your options are and how suitable they are for you.
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 should take personalised advice.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com
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