Planning a tax-efficient return to the UK
While Portugal has so much to offer Britons living here, for some expatriates there comes a time when they want – or need – to return to the UK.
An easy mistake is assuming that, since the UK is your home country, moving back is straightforward. But when it comes to tax and financial planning, various aspects can trip you up. Careful, early planning is essential to make your move as straightforward and tax-efficient as possible.
As soon as you resume UK residence for tax purposes, your worldwide income and gains become taxable there. It can be costly, however, to assume that you will only become a UK resident again when you step back on British soil. In some cases, residency can be triggered before you even leave Portugal, potentially bringing you into the firing line for British taxation sooner than expected.
This could happen, for example, if you still own a UK property or buy one before moving back. Even if you keep your property in Portugal, as soon as you are seen to stop using it as your main home, you could be considered UK resident.
If you plan to spend time in Britain preparing for your return, take care not to accidentally bring forward the date you become UK resident. It can take as little as 16 days back home to trigger residency if you have been non-UK resident for under three years. If you have been non-resident for longer, you could become resident after 46 days of a tax year, or 30 days if staying in a UK property seen as your main home.
While generally you cannot decide where you are resident for tax purposes, you may have some control over the timing of your UK residency. With guidance, you can plan to transition at a time that will minimise your tax liabilities in both Portugal and the UK.
Your financial arrangements today should be designed to suit your personal circumstances and residency status. But once you move back to the UK, assets and structures that work favourably for you now as a Portuguese resident may not be so beneficial.
As well as the tax implications for income, such as pensions, your residency will influence your tax liabilities when buying, selling or moving any financial interests. Before buying a new home, for example, make sure you understand how tax rules locally and in the UK might restrict or eliminate the availability of main home reliefs, especially once the UK is no longer a member of the EU. Capital gains tax is also important – it may be more beneficial to sell or buy when resident of one country over the other.
Depending on your situation, you might find it beneficial to either bring forward or delay selling or transferring any assets according to where you are a tax resident. In particular, careful planning of the date of sale of your overseas home is crucial.
If you transferred your UK pension into a Qualifying Recognised Overseas Pension Scheme (QROPS), you need to take specialist advice on the best way forward. And if you made pension decisions based on tax-compliant opportunities in Portugal, you need to establish what you should do once you are liable to UK taxation.
Estate planning considerations
Similarly, your estate planning will need a thorough review to consider inheritance taxes, succession law, probate etc. If you have trust arrangements, there could be tax consequences you need to explore before returning to the UK. You should also take specialist advice if you have any UK inheritance tax planning structures set up on the basis that you had a domicile of choice in Portugal.
Although the March 2019 exit date is not far away, there is still uncertainty about what form Brexit will take and when changes will take effect.
Remember: if you return to the UK after the Brexit cut-off, you will be moving to a non-EU country to become a non-EU resident. This could trigger higher taxation in terms of exit taxes on the sale of shares or capital gains tax on selling property within the EU.
Whatever your reasons for returning to the UK, it is important to plan carefully in advance, and review all the tax and wealth management considerations before you leave Portugal. Ideally, if you can be flexible around the timing of your move, you should plan your return date around your tax planning – but beware the ticking Brexit clock. An adviser with cross-border expertise can help you avoid punitive tax implications and make use of tax-efficient opportunities in both countries.
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.
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. | www.blevinsfranks.com