The Chinese New Year celebrations bring to mind an old Chinese proverb that has particular relevance amidst today’s Brexit uncertainty: ‘dig the well before you are thirsty’. In other words, make sure you plan for your future needs early, before it becomes too late.
Despite many unknowns, now is the time for Britons living in Portugal to prepare for a post-Brexit world. Here we look at securing residency and pension benefits.
December brought reassuring news for expatriates as the UK and the EU27 agreed to maintain existing residency rights for Britons settled in the EU. A joint statement confirmed that citizens “lawfully residing” on both sides can continue “to live, work or study as they currently do under the same conditions as under Union law”.
So as long as you are legally resident in Portugal at the Brexit cut-off date, you should keep the right to stay and access the same benefits as today for as long as you remain resident.
If you are living in Portugal, you need to register at your local municipal office to formally record your position here. You should apply for a residency permit – Autorização de Residência – within 30 days following your three-month anniversary of arriving in Portugal. This can be upgraded to permanent residency after a continuous five years in the country.
Non-habitual residency (NHR)
Regardless of Brexit, Britons in Portugal can continue to apply for and enjoy significant tax advantages for their first 10 years in the country through NHR. As this tax regime is available to any eligible relocating foreign national – including those outside the EU – Portugal will continue to welcome suitable British applicants.
However, to be eligible for NHR you need to meet Portuguese residency rules, which may change for Britons post-Brexit. It will, therefore, be much easier to apply now as an EU citizen.
Those thinking about moving to Portugal should act fast. While it may seem like Brexit is still a long way off, there is likely to be a surge of interest and an administrative backlog for residency applications as the cut-off date draws nearer. Even if you would prefer to wait until more practical Brexit details are known, it is a good idea to relocate and start the residency process – under current rules – as soon as possible. Post-Brexit, we can expect the requirements, time and expense for acquiring residency to be much less straightforward than today.
The UK has committed to continue yearly cost-of-living increases to State Pension payments for retired Britons living in the EU pre-Brexit. As a result, British pensioners in Portugal can receive annual increases linked to the ‘triple lock’ – whichever is highest out of the rate of inflation, earnings or 2.5% – until 2022.
When it comes to private pensions, current opportunities may not survive Brexit. Today, UK pension contributions and growth both benefit from tax relief in Britain, and can potentially be accessed by expatriates without paying UK tax (under double tax agreements). While this is unlikely to change with Brexit, the government may want to stem the flow of UK pensions abroad and keep more funds within taxable range.
Currently, it is possible for Portuguese residents to transfer UK pension funds to a Qualifying Recognised Overseas Pension Scheme (QROPS) in the EU or European Economic Area (EEA) tax-free. Doing this can unlock tax efficiency, estate planning advantages and currency flexibility. However, since March 9, 2017, transfers to QROPS outside the EU/EEA attract a 25% UK taxation (unless you live in the same jurisdiction).
Post-Brexit, the UK could potentially limit how expatriates can access their pensions by widening this taxation net, or by making it harder to cash-in UK ‘final salary’ pensions tax-efficiently. Consider acting now under current rules, but take personalised, regulated advice to ensure a suitable approach and avoid pension scams.
Although the Brexit date is currently set for March 29, 2019 – and could potentially be extended by a transition agreement – it is sensible to work towards a much shorter deadline. Pension transfers, for example, can take several months, so it is a good idea to act as far ahead as possible.
With just a few months of certainty left, now is also the time to explore your residency, estate planning, investments and general tax planning options. With suitable planning – done early – you can make sure you are in the best position possible to continue enjoying your life in Portugal as you do today.
A locally-based financial adviser who understands the interaction between both the UK and Portugal can help you take advantage of opportunities and find the best solutions tailored for you as an expatriate, during the Brexit countdown and beyond.
Blevins Franks accepts no liability for any loss resulting from any action or inaction or omission as a result of reading this article, which is general in nature and not specific to your circumstances. Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.
By Dan Henderson
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Dan Henderson, Partner of Blevins Franks, is a highly experienced financial adviser, specialising in retirement, investment and succession planning. He holds the Diploma for Financial Advisers and advanced CII qualifications in pensions and investment planning.