As 2019 draws to a close, this is a good time to reflect upon the last 12 months before looking forward to the year ahead. What happened that may have affected your finances or that might need further consideration in the new year?
Although the Portuguese tax year rolled over in January with very few changes, a new capital gains tax exemption introduced more flexibility for retiree expatriates. Now, Portuguese residents who are retired or aged over 65 have the option to reinvest proceeds from the sale of a main home into an eligible pension or insurance policy within six months without attracting capital gains tax (subject to other qualifying conditions also being met). Previously, an exemption was only available when reinvesting into another main home within Portugal/the EU, so this is a particularly welcome development for those downsizing their home.
One change that was less beneficial concerned the taxation of foreign pensions under the non-habitual residence (NHR) regime. Following a rule clarification on what constitutes a pension lump sum, certain withdrawals no longer qualify for tax exemptions under NHR. Now, pension income must be taken over a period of at least 10 years in order to be received tax-free in Portugal; otherwise, it will be deemed investment income and taxed accordingly.
Other than this, NHR was unchanged so continues to offer eligible residents significant tax breaks for their first decade in the country. However, now in its 10th year, 2020 will see the end of the eligible period for the first adopters. If you secured NHR status in 2009, take early, personalised advice to ensure you take advantage of other tax-efficient opportunities for your income and investments.
Similarly, there were no significant changes for expatriates when the UK tax year ticked over in April. There was a slight rise in thresholds for income tax and capital gains tax, and the State Pension increased in line with inflation as planned.
There is less clarity looking ahead. With the usual Autumn Budget in November cancelled by an unusual General Election in December, we cannot be sure what the 2020 UK tax year will bring.
Markets are always changeable, and this year is no exception, having been stoked by political instability from Trump’s global ‘trade war’ and ongoing Brexit uncertainty.
Interest rates around the world remained ultra-low as central banks sought to stimulate their economies. The US Federal Reserve decreased its base rate for the first time in a decade – and then did it twice more. The UK rate has been stuck at 0.75% since August 2018 and the Eurozone has endured negative rates for some time.
Conversely, the US stock market (the S&P500) reached record highs in November and was on track to see its highest annual return since 2013…until Trump reignited doubts about a US-China trade deal. Global stock markets were also poised to post a strong annual performance of up to 20% (as at December 2) – compared to -11% in 2018.
Regardless of how markets are behaving at any given time, investors with a well-diversified and suitably constructed portfolio for their particular situation, needs and risk tolerance are better placed to ride out turbulence and enhance long-term (10 years plus) returns.
Of course, we cannot talk about the year – or the last three! – without mentioning Brexit. Despite much political disagreement, ongoing negotiations and several false starts, 2019 brought no real developments.
The original March 29 and subsequent April 12 deadlines came and went with no Brexit. The ‘concrete’ October 31 exit date set by incoming Prime Minister Boris Johnson also went by with no final say on when (or even if) the UK might leave the EU.
At the time of writing, a Brexit due date of January 31 seems likely, but depends on the outcome of the UK General Election and subsequent changes in Parliament. In any case, the likelihood of a no deal Brexit has greatly diminished, so the transition period looks set to run until December 31, 2020.
The Portuguese government has provided reassurance in any event by locking residency and healthcare rights into Portuguese law for settled UK nationals until the end of 2020. To benefit, you must register with the Portuguese authorities before the final Brexit cut-off date.
Ultimately, to secure the best results and financial peace of mind for you and your family in 2020, take personalised, professional advice. With suitable strategic financial planning in place, you can navigate the current climate and prepare appropriately for the challenges of the year ahead.
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. The value of investments can fall as well as rise, as can the income arising from them. Past performance should not be seen as an indication of future performance.
By Adrian Hook
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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). | www.blevinsfranks.com