If you have been dreaming about living in Portugal but haven’t yet, what’s stopping you? While many people need to wait until retirement, for others it may be the fear of foreign taxes, or just weighing up the pros and cons of such a big life change. And, of course, ongoing Brexit uncertainty has muddied the waters for would-be expatriates.
Interestingly, the current unsettled political situation in the UK, triggered by Brexit frustration, is the very reason some Britons are now leaving to become tax resident elsewhere. A new UK government – of any denomination – is likely to introduce changes when taking over the nation’s purse strings. There is speculation, for instance, that higher earners or those holding valuable assets could be hit with more punitive taxes following a general election. This could be through higher income or capital gains taxes, pension reform, or tightening of the inheritance tax regime to capture more revenue. Some are even touting the possibility of a UK wealth tax.
However, no-one can predict for sure what a government change would bring and how this may affect your pocket. Besides, your tax burden can rise and fall at any given time. While good financial planning can help protect your wealth – wherever you are resident – if you are considering moving to Portugal, there may never be a better time to do it.
Portugal’s warm welcome
The Portuguese government has been providing more and more reassurance to UK nationals in the face of Brexit. Despite the ongoing negotiations and unclear Brexit timeline, they have confirmed uninterrupted residence, healthcare and voting rights for Britons who are settled here before December 31, 2020.
Non-habitual residence (NHR)
With the highly beneficial non-habitual residence regime continuing to offer special tax benefits to new residents, Portugal is also a tax-efficient environment for Britons looking to relocate.
NHR offers a lower income tax rate to workers employed in ‘high value-added’ professions, but it can also benefit retirees. Most foreign income can be received tax-free in Portugal for 10 years under the regime, making it possible to receive some UK pensions, rental income and certain capital gains without paying taxes in either country.
As you do not need to be an EU citizen to qualify for NHR, Brexit will not affect eligibility for UK nationals. You cannot have been Portuguese resident within the last five years, however, so you need to apply soon after arriving in Portugal to benefit.
Tax incentives for returning residents
There is a different beneficial tax regime on offer if you have been Portuguese resident before (up to the end of 2015). So long as you have not been resident within the last three Portugal tax years and return before December 31, 2020, you could qualify for a 50% reduction in employment and self-employment income tax for a five-year period.
Non-EU residents with money to invest can benefit from Portugal’s ‘golden visa’ programme. This offers a renewable one-year residence permit to those who buy Portuguese real estate valued at €500,000+ (€350,000+ in urban regeneration areas), or who invest a minimum amount (starting at €250,000) in various types of Portuguese enterprise.
Whatever kind of temporary permit you have, after five years of continuing to meet the residence requirements in Portugal, you can apply for permanent residence. Portuguese citizenship becomes available after six years.
Planning a tax-efficient move
As soon as you have decided to move, it is sensible to start reviewing your financial planning.
Once you become resident in Portugal, your worldwide income and some gains attract Portuguese taxation, so make sure you are prepared. With early planning, it is possible to time your change of residency to minimise tax liabilities – and maximise opportunities – in both countries.
Do not overlook reviewing how you hold your savings, investments, pensions and assets, as what is tax-efficient in the UK is unlikely to be the same in Portugal. Even outside of NHR and other special tax regimes, there are arrangements available in Portugal that can prove very tax-efficient, for you and for your heirs, so make sure you explore all opportunities.
Note that Portugal has very different succession rules to the UK, so you should also review your estate planning before you become resident. Under Portugal’s ‘forced heirship’ law, your estate will automatically be distributed in a certain way, even if your will states otherwise, so take care to consider your options.
While Portugal is a fantastic place to call home, careful and early financial planning can help you make the most of what it has to offer. Cross-border tax, wealth management, pensions and estate planning is a complex area, so take specialist advice to secure the best results.
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
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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.