By Sharon Farrell, Partner, Blevins Franks
There’s no doubt Portugal is a fantastic place to make your home, but did you know it can also offer financial advantages? If you are planning to live here, or have recently arrived, with careful financial planning you can make the most of tax-efficient opportunities and avoid potential mistakes.
Tax residence in Portugal
You are usually considered a Portuguese tax resident after 183 days in the country, but it can be earlier if you have a permanent Portuguese home. Once resident here, your worldwide income and certain gains become liable to Portuguese taxation, so make sure you understand how Portugal taxation will affect you and take steps to be prepared for it.
Optimising Portugal’s tax benefits
While we may miss the previous non-habitual residence (NHR) regime, Portugal continues to offer tax advantages. It just means that specialist advice is more important than ever before, since how and where you hold assets can make a significant difference. And don’t assume what was tax-efficient in your country of origin is tax-efficient elsewhere. UK ISAs, for example, are taxable here, but Portugal provides its own tax planning opportunities. Holding on to previous arrangements can result in unnecessary tax.
For example, Portugal offers the potential to enjoy extremely favourable tax treatment on investments. Many expatriates benefit from holding capital in a structure similar to an offshore life assurance bond, which acts as an investment wrapper to a conventional portfolio. No tax is payable on the underlying income until a withdrawal is made, at which point only a proportion of the profit is taxable in Portugal and the effective rate decreases over time.
When it comes to UK pensions, there may be alternative attractive tax-efficient options for residents to access their pension, making it comparable to the previous NHR benefits.
If you’re buying luxury property, bear in mind that Portugal imposes a ‘wealth tax’ of sorts on high-value local real estate. However, you’re only liable on any Portuguese property value over €600,000 – a couple could jointly own property up to €1.2 million without paying tax.
Another key attraction is Portugal’s very benign inheritance tax regime. ‘Stamp duty’ is only charged on assets located in Portugal, the tax rate is just 10%, and spouses, ascendants and descendants are exempt. Good estate planning can help ensure your legacy passes tax-efficiently to your chosen heirs.
Timing your move
It is worth exploring which is the best time to sell your UK assets (property and investments). Would you pay less capital gains tax if you sold them as a resident of the UK or of Portugal? Talking to a cross-border financial adviser will prove invaluable here, as they will be up to date on both countries’ tax regimes and the interaction between them.
Unsurprisingly, cross-border tax and financial planning is complicated, so take personalised, professional guidance to ensure you get the most out of living in Portugal.
A financially secure retirement
If you’re enjoying your retirement in Portugal, weigh up your pension options to establish which is best for you. Consider your circumstances, objectives and other accessible wealth, and the tax implications in both Portugal and the UK.
It’s advisable to review your savings and investments, including the currency they are held in. Your circumstances and goals change when you relocate, so take a fresh look at your financial planning to confirm everything is set up in the best way for your new life. Ensure your portfolio is structured around your situation, aims and risk profile with adequate diversification.
Unsurprisingly, cross-border tax and financial planning is complicated, so take personalised, professional guidance to ensure you get the most out of living in Portugal.
With decades of experience advising UK nationals moving and living overseas, and an office in Portugal for 30 years, Blevins Franks has gained a deep understanding of the financial planning needs of British expatriates here. We guide you through the various aspects of setting up home here, providing holistic advice on tax mitigation, estate planning, investments and pensions. Our service is highly personal, and provides you with peace of mind of knowing all your financial affairs are in order.
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.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
