We are certainly living in interesting times as the UK prepares to start a new chapter in its history. This has created uncertainty for British expatriates here in Portugal and elsewhere in the EU. Many moved to Portugal many years ago; they now consider Portugal their permanent home and have no plans to leave. And I include myself here, having lived in the Algarve for 16 years.
There are many questions and theories about what will happen next, but the process of exiting the EU will take at least two years, maybe longer. The rights we have at present will be maintained for this period, and it is possible that there will not be drastic changes here after that.
The first big question for expatriates is residency. We can continue to live in Portugal, as we have done for so many years, for at least the next two years and probably a lot longer. After the Brexit terms have been agreed we expect common sense to prevail and a new bilateral agreement set up between Portugal and the UK to protect the rights of Britons in Portugal and Portuguese nationals in the UK. Or there could be multilateral agreement between the UK and EU governing issues like residency rights.
British expatriates provide a significant contribution to the local economy. We buy property, pay taxes, spend money in local establishments etc. We expect the Portuguese government will want to continue to attract Britons to move to Portugal. Likewise it will want to protect the rights of all the Portuguese people living in the UK, which would involve reciprocal agreements.
Healthcare is another concern for expatriates here (although some may also have private health cover). Although we do not know what will happen long-term, the current system should continue to apply for at least the next couple of years until the point where the UK officially leaves the EU.
Another concern is how the Brexit vote will hit us financially.
We can expect exchange rates to continue to fluctuate for a while. Ideally, the currency of your assets should match the currency of your liabilities. So if you live in Portugal, and your living expenses are in Euro, at least some of your savings and investments should be in Euro. Speak to a financial adviser based here and discuss your aims and circumstances to determine what would be the best solution for you.
We can also expect investment assets prices to continue to fluctuate, as markets often do in times of uncertainty. It is more important than ever to have suitable asset allocation and diversification in your portfolio. Many British expatriates lean towards UK investments – corporate bonds issued by UK companies, gilts, UK shares etc. Indeed UK advisers often structure their clients’ portfolios this way but that may not always be the right balance for you.
You need to seek expert financial advice from a locally based adviser, to review your portfolio to see if you need more diversification across assets, geographical locations etc. You also want the peace of mind of knowing it is designed around your needs, aims and risk profile.
Taxation also hits our pockets; will Brexit lead to tax changes?
If you are resident in Portugal you will be taxed the same as all Portuguese residents, regardless of nationality. There are only a few circumstances where you will be affected.
For example, the main home reinvestment relief on the sale of a Portuguese home is currently only available for reinvestment into a property in Portugal or the EU.
If you have UK source income, taxation is determined by the UK/Portugal double tax treaty which is negotiated between the two countries and independent of the EU.
Prior to the Brexit vote, the then Chancellor, George Osborne, warned if the UK left the EU tax rises would be needed to fill a “black hole” and suggested higher income and inheritance tax rates. The UK’s new chancellor, Philip Hammond, has said there will be no emergency budget to deal with the economic effects of Brexit and that he will deliver an autumn statement as normal.
In the current climate, you should build a good relationship with an established locally based financial adviser, so they keep you informed of developments that affect you and help you plan if and when you need to make changes to your wealth management.
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 is advised to seek personalised advice.
By Gavin Scott
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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