2015 started with a bang tax wise, with the sudden introduction of new legislation to tax fiscal structures like trusts. This affected many British expatriates living here, and meant that they had to review their tax and estate planning.
So far there have been no significant tax surprises for this year, but these are uncertain times in Portugal. This is the first time the country has had a left alliance government, and we still need to see how this will pan out in terms of taxation.
The new socialist government will have a tough balancing act, trying to both ease austerity and abide by the Eurozone debt reduction rules.
One way for governments to increase revenue is to increase taxes – In Portugal we are still paying the higher taxes introduced as part of austerity measures under the previous administration.
The new government, however, has pledged to increase workers’ disposable income and has spoken about cutting taxes. In particular, it looks like the 3.5% surcharge will be reduced over the next couple of years for lower incomes.
The government could, however, focus on raising more tax revenue from the wealthy. For example, it could increase capital taxes.
We have seen this happen elsewhere. For example, when socialist François Hollande came to power in France in 2012, his party implemented a number of tax rises on the wealthy. Fixed tax rates on investment income and capital gains were abolished so that they are now taxed at the income tax scale rates. Higher earners now pay more tax as a result. Surtaxes of up to 6% were added to capital gains on the sale of real estate.
In the UK, the Labour government introduced a new top rate of income tax of 50% in 2010, something which the following coalition government then reduced to 45%.
Another way of raising more capital taxes would be to increase inheritance tax. Portugal’s “stamp duty” is relatively innocuous compared to countries like the UK, France and Spain. The government could potentially make changes here, for example by taxing large inheritances even where inherited by the immediate family, and making this apply to worldwide assets.
It may therefore become even more important for expatriates in Portugal to take steps to protect their wealth from tax.
While we do not know at this stage exactly what the new government will do, it is worth noting that there are legitimate tax efficient investment structures available which have largely been unaffected by changes brought in by European governments and these are definitely worth considering in Portugal. In spite of austerity measures and higher taxes over recent years, they have remained largely untouched, and even in France with all President Hollande’s tax reforms they continue to provide significant tax benefits. They are also still available in the UK and tax efficient for UK nationals living in Portugal.
There is another reason to review your tax planning if you have not already – the start of the new global automatic exchange of information under the Common Reporting Standard.
From January this year, financial institutions are starting to collect data on clients’ assets, so that they can pass this information on to the tax authority in the client’s country of residence. This is happening automatically (so not only on request or where tax evasion is suspected). The Portuguese tax authorities will therefore receive data on the financial assets you hold in participating countries outside Portugal. Over 90 countries have committed so far.
There has never been a better time to consider your tax planning and, importantly, the use of a fully tax compliant structure in Portugal to ensure peace of mind. You want to ensure both that you are fulfilling all your tax obligations in Portugal, and that you are protecting your wealth from taxation wherever possible.
Tax planning and estate planning have become more complex, especially if you have assets and heirs in different countries. In such a changing environment, you need to take up-to-date expert advice. Advisory firms should have a high level of tax, trust and investment expertise, with specialists in each of these areas working together, and in-depth knowledge of cross border taxation and international experience of tax informed investment structures.
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
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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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