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Resolutions for a new tax year


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Raoul Ruiz Martinez is based in the Algarve office of euroFINESCOs.a. as an Investment Adviser for Finesco Financial Services Ltd., Glasgow, and regulated to advise on capital investments in both the UK and Portugal.

Are you still upholding your New Year resolutions? Perhaps you have decided to keep them private for fear of failing or even jinxing your good intentions.

Whatever they are, they may fade into distant memories as 2008 rolls on and you become caught up with various other more pressing issues.

The future may hold some exciting new prospects and it is a wonderful time to look forward. However, as you leap into 2008 you must remember to review your past financial dealings.

One pressing issue for review is that, as Portuguese tax residents, you will need to gather information on your global income to submit a tax return for 2007.

You may be doing this yourself or, more wisely, using a tax adviser who has an experienced understanding as to how your income and capital gains are assessed here in Portugal.

Residence is the key factor and, as an expatriate residing in Portugal, you may also be heading back and forth to your home country throughout the year.

If so, where are you supposed to be assessed for income tax?

Alas, only your accountant or tax adviser and not your financial adviser can answer these questions for you.

Sadly, in one particular case in December 2006, one ill-advised UK expatriate came up against the UK Revenue (HMRC) and lost. This particular court ruling was in relation to the issue of residence (and domicile) for Robert Gaines-Cooper.

The court case was centred on the rules used for determining residence for tax purposes.

Mr Gaines-Cooper had been making visits back to the UK on a regular basis from his overseas residence but believed he had kept within the 90 day average of visits over a four-year period.

In calculating his number of days, he had excluded his day of arrival and day of departure. This meant he could, for example, arrive in the UK on a Monday morning and leave on the Wednesday evening and only register a one-day visit.

Case lost

While it has been Revenue practice to allow for these days to be excluded, they were and continue to be concerned that the system is being abused.

They challenged successfully on the grounds that there were other factors that pointed to residence, including residence of his wife and son, memberships of associations and clubs and so on, and that the Taxes Act does not define a test for residence.

Having lost the case, Mr Gaines-Cooper faced UK tax liabilities which, had he owned an offshore bond would only have been crystallised had a chargeable event occurred.

With other forms of assets (stocks, shares, deposits), he would be liable to income and gains tax for the period of his residence.

At the end of 2006, the Institute of Public Policy Research announced its finding that over one in 10 UK nationals now live abroad. This is a massive figure and represents some 5.5 million people.

Many of them will be looking to offshore bonds as a suitable vehicle for some of their investments, particularly those who intend to travel back to the UK occasionally and who wish to avoid the situation of having their residence queried by HMRC.

Many UK financial advisers have recommended onshore bonds when the offshore alternative may have proved more effective, specifically where the situation of a husband and wife using assignments and those retiring abroad are particularly relevant.

It is very easy to make assumptions about how other jurisdictions such as Portugal will tax your investments or savings. Care needs to be taken in clarifying this aspect which requires specialist advice.

As a financial adviser, I urge you to seek specialised local opinion that integrates a financial adviser’s opinion in order to review your portfolio as a tax resident in Portugal and to take into consideration your own personal lifestyle.

This will give you the full and clear picture, not only for 2008, but for all the years ahead.

For more information, please contact Raoul Ruiz Martinez by email on [email protected] or call 289 561 333.

Finesco Financial Services Ltd is authorised and regulated by the Financial Services Authority (FSA). Some of the services provided are not regulated by the FSA because they are not included within the Financial Services and Markets Act 2000.