Reviewing your currency, investment, tax planning and pension options now can help you secure financial security for 2021 and beyond.
Now that the extension deadline for the Brexit transition period has passed, it is certain that the UK will be leaving the EU in the new year. Reassuringly – deal or no-deal – UK nationals lawfully settled in Portugal before 2021 will have locked in the right to remain and enjoy uninterrupted citizens’ rights. But there are still many unknowns.
Other than establishing your residence, what steps can you take to make your financial position as secure as possible?
1. Review the best currency mix for you
It is common for UK expatriates to retain financial connections with the UK, such as property or bank accounts, with many preferring to keep their savings and investments in British pounds.
While there is comfort in the familiar, this does expose you to exchange rate risk. Once you are living in Portugal and spending euros in your daily life, it can become more expensive to take your income in sterling. Explore investment structures that offer the flexibility to invest and make withdrawals in different currencies.
2. Avoid overexposure to UK investments
Likewise, many expatriates favour British investments, such as UK corporate bonds or FTSE-listed shares. This could especially be the case if you are still using a UK-based adviser. If so, your financial planning may actually be better suited to a UK resident than to someone in your situation. Note also that UK advisers may not be authorised to continue advising you as an EU resident after the transition period, so check with yours.
A local adviser with in-depth knowledge can help you avoid costly mistakes and take advantage of tax-efficient opportunities in Portugal that could work more favourably for your circumstances.
3. Diversify, diversify, diversify
Achieving higher returns in today’s difficult conditions and low interest rate climate means looking further than bank savings and fixed interest investment options. While market movements can be unsettling, those invested for the medium to long-term in a well-diversified portfolio are best placed to see their wealth grow over time. Your financial adviser should undertake an objective assessment of your risk appetite to ensure your portfolio offers the right balance of risk and return for your peace of mind.
Amidst today’s economic uncertainty, it is more important than ever to make sure your portfolio is not overweight in UK assets and is suitably diversified. You can reduce risk – Brexit-related or otherwise – by spreading investments across regions, asset types and market sectors to limit your exposure in any one area.
4. Get your tax planning in order
When it comes to the taxes you pay in Portugal, there is no reason for anything to change post-Brexit. Your tax treatment as an expatriate is determined by the UK-Portugal tax treaty that exists independently of the EU.
Brexit will not affect UK nationals’ ability to qualify for significant tax advantages through the non-habitual residency (NHR) scheme. There are, however, some circumstances where taxation may be affected. For example, once the UK leaves the EU/EEA, expatriates selling a home in Portugal to buy a British property will no longer be eligible for capital gains tax relief. Take personalised advice to establish whether there are any potential implications and solutions for your family’s circumstances.
5. Review your pension options
As things stand, Brexit should have no impact on how expatriates can access funds from UK-registered pension schemes or transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS).
However, many speculate that the UK could widen the 25% ‘overseas transfer charge’, which currently only affects EU residents who transfer UK pensions to a QROPS based outside the EU/EEA. Once outside the bloc, the UK gains freedom to tax capital within EU borders, so there may be a limited time to transfer to a QROPS tax-free.
Transferring now can shelter pension funds from future changes to UK rules and provide flexible currency options to protect your income from fluctuating exchange rates. However, it is not a one-size-fits-all solution. As with any pension decision, it is crucial to seek personalised, regulated advice to establish the right approach for you.
In any case, it is important to regularly review your financial arrangements. Regardless of Brexit, your circumstances and objectives can change over time, so what is right for you now may not be suitable in years to come.
Now has never been a better time to build a good relationship with a locally-based financial adviser who can keep you informed of developments that affect you and your family. They can explain the cross-border implications and help you plan if and when you need to take action so you can continue enjoying your chosen lifestyle in Portugal.
All advice received from any Blevins Franks firm is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation and/or investment advice. 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 Dan Henderson
Dan Henderson is a Partner of Blevins Franks in Portugal. A highly experienced financial adviser, he holds the Diploma in Financial Planning and advanced qualifications in pensions and investment planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com