Take time to review your finances for Portugal
If you are new to living in Portugal or organising your move here, do not forget to review your tax, financial and estate planning. When you relocate, it is crucial to adjust your wealth management to your new life – spending a little time on it now can prevent costly mistakes later.
Even if you have been living here for a while, it is a good idea to review your financial planning. A regular ‘health check’ can ensure everything is specifically designed for your family’s current situation in Portugal and that you are taking advantage of all the available opportunities.
As Brexit approaches, residence has become an even more important issue for UK nationals in Europe. While the proposed transition period should extend existing benefits and freedom of movement up until December 31, 2020, it is sensible to prepare for the original Brexit cut-off date of March 29, 2019.
If you wish to stay but do not already have permanent residency here (available after five years), collect as much evidence of your settled status in Portugal as possible. Make sure you register at your local municipal office; you could also sign up for the Portuguese health service, change your driving licence and inform your UK financial institutions that you have left.
Once you meet Portuguese tax residency rules, you must correctly declare your worldwide income, gains and wealth here. If, like many expatriates, you still have assets or earn income in the UK (or elsewhere), take care to make the required declarations and pay tax in the right place.
2. Tax planning
Brexit should not affect Britons’ ability to apply for and enjoy significant tax advantages through Portugal’s non-habitual residency (NHR) scheme. NHR benefits include a special low-income tax rate and the ability to receive foreign income, including certain UK pensions, tax-free for 10 years.
If you recently moved to Portugal (and have not been Portuguese tax resident for any of the previous five years), consider applying for NHR as soon as you can.
Even outside the NHR regime, Portugal can offer attractive tax benefits, especially for capital investments. In any case, what was tax-efficient in the UK is not necessarily tax-efficient in Portugal, so take time to review your savings and investments to explore how you can take full advantage of what is available.
If you still have a UK property you wish to sell at some point, be mindful that your timing can affect your eligibility for tax relief. Principal private residence relief could shelter any taxable gain in the UK if you sell your UK home within 18 months of moving out. Unless you are resident under the NHR regime, Portuguese taxes are usually payable too (with credit given for any UK tax paid), although certain reliefs are available.
Note that if you plan to buy a luxury property or own more than one home here, you will attract annual wealth taxes if your Portuguese property portfolio exceeds €600,000 (€1.2 million for couples with joint ownership).
4. Inheritance taxes and estate planning
Portugal has very different inheritance tax and succession law to the UK. Its ‘forced heirship’ rules, for example, could automatically pass half your worldwide estate to your direct family, whatever your intentions. You can specify in your will for the EU regulation ‘Brussels IV’ to apply relevant British law to your estate instead, but take care to understand how this works and the tax implications to establish whether this is right for your family.
Your estate plan should also be set up to achieve your wishes in the most tax-efficient way possible. If you remain UK domiciled – as many expatriates do – you continue to be liable for UK inheritance tax, so you should plan to reduce this liability for your heirs.
Make it a priority to review your pension options now – before Brexit potentially changes the rules for expatriates – to explore how you can maximise your retirement savings.
Portuguese residents can currently transfer UK funds to an EU/EEA-based Qualifying Recognised Overseas Pension Scheme (QROPS) tax-free. While this can unlock various tax and flexibility benefits, taking personalised, regulated advice is essential to establish the best approach for you.
Beware that UK-based advisers are unlikely to have the in-depth understanding of Portuguese taxation and cross-border expertise to make the most of all the available opportunities. For the best results, take local, personalised advice that considers your whole financial situation in relation to your unique circumstances and goals. Once you secure peace of mind that your financial affairs are in good order, you can get on with enjoying life in Portugal.
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 are advised to seek personalised advice.
By Adrian Hook
Adrian Hook is a Partner of Blevins Franks and has been providing holistic financial planning advice to UK nationals in the Algarve since 2007. Adrian is professionally qualified, holding the Diploma for Financial Advisers.