Those of us fortunate enough to be safe and healthy during these unprecedented times will be looking for positive ways to spend our time in lockdown. While home improvements, baking or learning a new skill are usually top of the list, this is also a good opportunity to tend to your financial wellbeing.
With the Brexit clock still ticking, expatriates in particular can benefit from using this time to fine-tune their tax, pensions and estate planning. Here are some key considerations.
The Brexit countdown
After an understandable break while the UK and EU prioritised public health issues, Brexit negotiations have recently resumed. While it may seem unrealistic that trade deals can be agreed before the transition period ends on December 31, this remains the deadline. The UK government has until July to request an extension, but first needs to amend the law that prevents it – and has reiterated unwillingness to do so.
This means 2021 could still start with a no-deal Brexit. As such, it is more important than ever to make sure you are prepared from January 1. Even if there is a further Brexit extension, getting arrangements in place may take several months, so there is no time to waste.
As things stand, you need to be legally resident in Portugal before the end of 2020 to come under the protection of the Withdrawal Agreement. This guarantees the right to stay and enjoy uninterrupted benefits for as long as you remain resident there.
If you are still planning to permanently move to Portugal, use this time to get your affairs in order. To acquire residence after the transition period, you will almost certainly have to meet more stringent requirements than today, including demonstrating a minimum income per person. So where possible, put plans in place to relocate before December 31, 2020.
If you are already abroad but not yet registered as resident, explore steps you can take now to secure the lawfully settled status required post-Brexit.
The way you structure your assets and wealth can make a significant difference to your tax bill. You need to make sure your arrangements are structured appropriately for your life abroad as well as your particular aims, circumstance, goals and risk appetite.
Are you taking advantage of tax-efficient structures available in Portugal? Besides tax savings, these may offer additional benefits such as currency and income flexibility.
Regardless of Brexit, it is worth reviewing your UK assets to establish how much they are costing you in tax. Now, with just a few months until the UK is set to fully leave the EU, this is even more important to prevent unnecessary taxation if rules change.
With more UK pension freedom than ever, review your options with care. Many expatriates choose to transfer UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS). Although you can currently transfer to EU/EEA-based QROPS tax-free, this could change after the Brexit transition ends.
The UK has already brought in a 25% ‘overseas transfer charge’ for other transfers and has the means to easily extend this to EU/EEA transfers once it sheds its EU obligations. So, if you are considering a QROPS, don’t risk leaving it so late that you potentially lose a quarter to UK taxes.
QROPS can also offer advantages, such as income and currency flexibility, but will not suit everyone. You may find it more beneficial, for example, to reinvest UK pension funds into Portuguese-compliant investment arrangements, or even leave your UK pension where it is. Before making a decision, take care to review the best course of action for your particular circumstances with personalised, regulated pensions advice.
Is your legacy on track to go to your chosen heirs, according to your wishes and with minimal taxation?
Take care to understand the succession laws and taxes in Portugal and anywhere else you have assets and heirs. Also, make sure you review the pros and cons of using the EU succession regulation ‘Brussels IV’ to override local ‘forced heirship’ rules.
You need a strategy that achieves your wishes while making the process as straightforward and tax-efficient as possible for your heirs. And don’t forget your own needs; consider the tax implications to find the optimum solution for your wealth during your lifetime too.
Ultimately, cross-border tax and financial planning is complex. While you can do some groundwork yourself, you will benefit from talking to a specialist adviser with in-depth knowledge of the Portuguese tax regime and its interaction with UK rules. They can help you take advantage of available tax, investment, pensions and estate planning opportunities to ensure you do what works best for you and your family during these challenging times and beyond.
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 Adrian Hook
Adrian Hook is a Partner of Blevins Franks in Portugal and has been providing holistic financial planning advice to UK nationals in the Algarve since 2008. He holds the Diploma for Financial Advisers (DipFA) and is a member of the London Institute of Banking and Finance (LIBF).