By Portugal team
This article is published on: 21st September 2023
Join us, and our panel of guest speakers, for informed guidance on Portuguese resident tax and financial planning opportunities, commentary on investment markets and to meet like-minded people in your local area.
10th October 2023
Magnolia Hotel
Estr. da Quinta do Lago, 8135-106 Almancil
10am – 1pm
11th October 2023
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Quinta da Boavista, 8601-901 Lagos
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By Portugal team
This article is published on: 22nd February 2023
The Non-Habitual Residence (NHR) tax scheme has attracted many new residents to Portugal and has been a bonus for those relocating here for lifestyle reasons.
Whilst the scheme offers a 10-year ‘window’ of tax-reduced or even tax-free living, the position following the 10-year point can bring a substantial increase in tax exposure. However, with careful planning, it is possible to put yourself in a similar or even better position post-expiry of your NHR status.
Your position post NHR
After the NHR term, you are simply treated as a standard Portuguese taxpayer, and we can look at the contrast between pre and post-NHR treatment through the examples of UK property, pensions and dividends.
UK property
During NHR, any rental income from UK property is tax-free in Portugal, however post-NHR it becomes taxable at 28%.
In addition, during NHR you can sell UK property free of Portuguese capital gains tax but post NHR, you will face scale rates of tax on 50% of the gain. This difference can be particularly stark when considering the sale of a former UK main residence, as the following case of a lady we helped shows.
She purchased her UK home for £725k and the current value was £1.5m. She was unsure whether to sell her UK property shortly after moving to Portugal or to wait. Because of the timing of the sale, selling shortly after her arrival in Portugal would result in no tax in the UK and no tax in Portugal.
If she waited until after the NHR period, UK capital gains tax would be due on the gain made from April 2015 to the date of sale at 18%/28%, and additionally, tax would be due in Portugal on 50% of the gain at scale rates (up to 48% plus solidarity tax 2%/5%). Note, credit is given in Portugal for tax paid in the UK.
Pensions
During NHR, pension income is taxed at 0% (for pre–April 2020 NHRs) or 10% (for post-April 2020 NHRs).
However, after NHR, this will jump to at least 28%, and possibly up to 48% depending on the type of pension and how it is reported by your accountant.
If you have the 0% pension tax rate, it is important to not deplete your pension too quickly, as taking large lump sum payments can risk an unexpected tax charge. The tax office may deem the income to be long-term savings income rather than pension. If you are in this position and wish to deplete your pension during NHR you should take advice if you have not done so already.
UK dividends
UK dividends enjoy a 0% tax rate under NHR but post NHR this increases to 28%.
There are solutions
The key is planning early so, whether you are nearing the end of your NHR period or just starting, you should seek guidance as early as possible.
As an example, to avoid the increase in tax on pension income, it is possible to deplete your pension scheme completely during the NHR period and reinvest in a more tax-efficient structure that will continue to provide income post-NHR but be much more tax-efficient (single-digit or at least very low relative tax rates).
For those drawing dividends from UK companies, some may be considering an exit from their business and the end of NHR can be a catalyst for reviewing options for a business sale (0% tax on the sale is achievable in certain situations).
Returning to the UK?
Some clients will have a 10-year plan to remain in Portugal whilst they have NHR status, and then relocate back to the UK when their NHR expires. For these clients, there are planning opportunities to re-enter the UK system very tax efficiently but advice must be sought on an individual basis.
By Mark Quinn
This article is published on: 13th January 2023
Please join us for our quarterly client update and 2023 outlook video call on Thursday 26th January at 11am.
After registering, you will receive a confirmation email
containing information about joining the webinar.
I will be updating you on international tax issues affecting residents in Portugal, and those looking to relocate here.
I will also be joined by two specialists to give their thoughts on investment and currency markets:
Christopher Saunders
New Horizon Co-founder and Chartered Wealth Manager
Chris co-founded New Horizon in 2008 and has focussed on developing services to IFAs, accountants and other intermediaries and works with many leading IFA groups and accountancy networks in the UK and overseas.
Steve Eakins
Currency specialist, Lumon
Steve has been working in the international payments market for nearly 15 years. Over that time he has helped clients through the market around ash clouds, hung governments, wars in Europe, Brexit and Trump.
By Mark Quinn
This article is published on: 14th December 2022
I’m often asked for my opinion on property as an investment, either in Portugal or elsewhere and I must admit it doesn’t tick many boxes as an investment.
For example, it is generally subject to income tax, capital gains tax and succession tax, as well as ongoing local rates. It cannot be converted into cash quickly or easily (illiquid) and it is expensive and time-consuming to maintain. It also comes with administrative issues such as unruly tenants, rental void periods and due to its static nature, it is difficult to plan around.
Having said this, property continues to be a popular investment choice as it is easy to understand and you can touch it, giving investors a sense of security and reduced risk. Additionally, we probably all know a few ‘property millionaires’. So, what are the planning angles and how can you ‘get out’ and enjoy your spoils tax efficiently?
Capital gains tax (CGT)
Portuguese residents are subject to capital gains tax (CGT) on their worldwide property gains, unless the property was purchased before 1st January 1989, in which case CGT does not apply.
For Non-Habitual Residents (NHR) selling Portuguese property and non-NHRs CGT is due on 50% of the gain and is added to your other income in that tax year and taxed at scale rates.
In addition to this, if the property is located overseas, tax may also be due in the country the property is located. However, if there is a double taxation agreement between the two countries e.g. Portugal and the UK, you should not pay tax twice on the same gain.
Portuguese property
NHR status does not have an impact on the taxation of Portuguese property. The tax treatment is the same for NHR and normal residents, but despite the potential for eye-watering levels of tax, there are some reliefs available if the property you are selling is your home – it does not apply to rental property sold in Portugal. The two reliefs mentioned can be used in isolation or conjunction.
Main residence relief: You can mitigate all – or a portion of – the CGT by reinvesting the proceeds into another property in the EU or EEA. Any amount not reinvested is taxed.
Reinvestment into a qualifying pension or long-term savings structure: This is a relatively recent relief and is particularly advantageous for those wishing to downsize (and therefore will not fully reinvest the sale proceeds), or for those moving back to the UK or elsewhere outside of the EU/EEA.
There are strict criteria for qualification and we can advise on this area but most notably, you or your spouse must be retired or above 65 and the gain must be reinvested in a qualifying structure.
Non-Habitual Residence (NHR)
NHR gives those selling foreign property an advantage as gains are exempt from CGT in Portugal.
But what about the tax due in the country the property is located? Let’s look at UK property as an example.
The UK only applies CGT to gains accumulated since 6th April 2015 and you will also have your annual CGT allowance to deduct of £12,300 per person. Additional reliefs may also apply, further reducing any gains, but this will depend on whether the property sold was your home or investment property.
For example, if you bought an investment property in joint names in 1992 for £100,000 and it was sold today at £1m, ordinarily tax would be due on the £900k gain. But selling this as a non-UK resident, you only pay tax on the gain since April 2015 Using the straight-line method, the gain is £212,000 from which you can deduct your annual CGT allowance, leaving a taxable gain of £199,700. Assuming you had no UK income in that tax year, the tax due to HMRC would be £52,146 which is an effective rate of 5.7%.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.
Contact us at: +351 289 355 316
mark.quinn@spectrum-ifa.com
debrah.broadfield@spectrum-ifa.com
By Mark Quinn
This article is published on: 7th December 2022
In my conversations with clients, I come across several issues that create confusion. In this article we will dispel some key common myths.
Myth 1 – “I’ve left the UK so I won’t pay UK taxes”
The UK has a particularly complicated and adhesive tax system that clings on to former residents after they have left if they have not effectively severed their ties. So, even though you have left the UK, you could still be liable to tax in the UK on income, capital gains and on death (inheritance tax).
Additionally, certain types of income may remain taxable in the UK even after you have left and established residency elsewhere. This means that you may have to continue to complete an annual tax return for HMRC as well as make your annual declaration in Portugal.
Myth 2 – “I can come and go as I choose”
In order to maintain your residency in Portugal, or elsewhere, there are day limitations that you will have to adhere to. For example, in order to remain outside of the UK tax net after leaving, you have to cap the time you spend back in the UK. This may be as little as 16 days or as much as 182 days.
If you are in Portugal on a visa, such as the D7 or Golden Visa, you will have minimum stay requirements in Portugal to maintain this status.
Myth 3 – “I’ve left the UK, so I won’t be subject to UK Inheritance Tax (IHT)”
Unlike income tax and capital gains tax which is generally based on your location, liability to UK IHT is determined by your domicile. For most people, this means they will continue to pay UK IHT even if they no longer live in the UK.
There are steps you can take to mitigate a portion, or all, UK IHT but individual advice should be sought as it is a highly complex area. Any challenge by HMRC will be once you have passed so it requires specialist advice during your lifetime.
Myth 4 – “Non-Habitual Residence (NHR) means I’m not resident”
NHR is the 10-year tax incentivised scheme for new residents to Portugal. The name causes understandable confusion as it implies that you are not a resident of Portugal.
What NHR actually means is that you have not been tax resident in Portugal in the last 5 years, and in order to apply for NHR you must first be legally resident in Portugal.
This has created issues where people have not applied for NHR due to this misunderstanding, or worse, have been actively discouraged from applying for it even though in 99% of cases it is a financial ‘no brainer’.
Myth 5 – “NHR means I’ll pay 0%”
Whilst the NHR scheme is certainly very attractive and can result in low or nil tax rates, planning is required to achieve the best position and it does not happen automatically.
Myth 6 – “I report my income in the UK so I don’t have to declare in Portugal”
Many I speak to believe they can choose to report their income and gains in the place that results in the best financial position or where they ‘have always paid tax’, rather than where they should be paying tax.
As a resident of Portugal you should declare your worldwide income and gains, and pay the necessary tax, in Portugal.
Seek clear guidance
It is possible to achieve an extremely positive financial and tax position as a resident of Portugal, but you must ensure you have a clear understanding of the cross-border issues at play, particularly residency rules and taxation of income and gains to take full financial advantage. Speak to us for an initial consultation.
With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.
By Mark Quinn
This article is published on: 17th October 2022
Ideally, tax planning should start before you move to Portugal as this gives you the most flexibility and more planning options. However, residents can still take many steps after their move to reduce tax. Here are our 15 top tips.
Before moving to Portugal
After moving to Portugal
By Mark Quinn
This article is published on: 18th July 2022
Do you have questions about tax, currency, mortgages, the visa options available or financial planning in Portugal?
Join us on Thursday 28th July at 6pm for this live and free event to learn about everything involved in buying a property in Portugal and talk direct to our panel of experts.
Mark Quinn, our Portugal office Manager will be joining the esteemed panel including:
By Mark Quinn
This article is published on: 27th June 2022
If shares, investments or Portuguese property were acquired before January 1989 there is no capital gains tax on sale for Portuguese tax residents. In any other instances, capital gains tax is applied at 28% to any profits made.
Indexation relief is also available if they were held for more than 2 years and is applied on a sliding scale.
For example, if you decided to surrender a UK Stocks & Shares ISA or share portfolio, the gain made on sale would be taxed at 28% in Portugal. If no gain has been made, there is no tax to pay. There is no exemption for NHRs.
However, the Portuguese Budget for 2022 which was approved on 27 May 2022 introduces a change with effect from 1st January 2023 regarding the taxation of ‘short-term capital gains’ i.e. gains realised on assets that have been held for less than 365 days.
For investors whose taxable income (including the short-term realised gain) is €75,009 or more, the taxation will be increased from the flat rate of 28% (or 35% for investments held in blacklisted jurisdictions) to progressive rates, which can be as high as 48% (or even 53% if your total income exceeds €250,000.)
Investors can mitigate ongoing capital gains tax on their investments by using one of several “tax wrappers” available to Portuguese tax residents. Each wrapper will differ in terms of its features and benefits and the most appropriate structure will be different for each individual.
However, the purpose of such tax wrappers is to essentially act as a ‘trap’ on any gains. This means that you can be in control of the timing of any taxable events and potentially create a much lower overall tax figure. Equally important is that the underlying fund manager is not constrained in any investment decisions by punitive tax charges that could apply to short-term transactions.
Please talk to us to assess the different range of investment options and wrappers, and what the most appropriate may be for you and your family.
By Mark Quinn
This article is published on: 21st June 2022
I’m often asked for my opinion on property as an investment, either in Portugal or elsewhere and I must admit it doesn’t tick many boxes as an investment.
For example, it is generally subject to income tax, capital gains tax and succession tax, as well as ongoing local rates. It cannot be converted into cash quickly or easily (illiquid) and it is expensive and time-consuming to maintain. It can also come with administrative issues such as unruly tenants, rental void periods and due to its static nature, it is difficult to plan around.
Having said this, property continues to be a popular investment choice as it is easy to understand and you can touch it, giving investors a sense of security and reduced risk. Additionally, we probably all know a few ‘property millionaires’. So, what are the planning angles and how can you ‘get out’ and enjoy your spoils tax efficiently?
Capital gains tax (CGT)
Portuguese residents are subject to capital gains tax (CGT) on their worldwide property gains, unless the property was purchased before 1st January 1989, in which case CGT does not apply.
For Non-Habitual Residents (NHR) selling Portuguese property and non-NHRs, CGT is due on 50% of the gain and is added to your other income in that tax year and taxed at scale rates. In addition to this, if the property is located overseas, tax may also be due in the country the property is located. However, if there is a double taxation agreement between the two countries e.g. Portugal and the UK, you should not pay tax twice on the same gain.
Portuguese property
NHR status does not have an impact on the taxation of Portuguese property. The tax treatment is the same for NHR and normal residents, but despite the potential for eye-watering levels of tax, there are some reliefs available if the property you are selling is your main home – it does not apply to rental property sold in Portugal. The two reliefs mentioned can be used in isolation or conjunction.
Non-Habitual Residence (NHR)
NHR gives those selling foreign property an advantage as gains are exempt from CGT in Portugal. But what about the tax due in the country the property is located? Let’s look at UK property as an example. The UK only applies CGT to gains accumulated since 6th April 2015 and you will also have your annual CGT allowance to deduct of £12,300 per person. Additional reliefs may also apply, further reducing any gains, but this will depend on whether the property sold was your home or an investment property.
For example, if you bought an investment property in Portugal in 1992 for £100,000 and it was sold today at £1m, ordinarily tax would be due on the £900k gain. But selling this as a non-UK resident, you only pay tax on the gain since April 2015. Using the straight-line method, the gain is £212,000 from which you can deduct your annual CGT allowance, leaving a taxable gain of £199,700. Assuming you had no UK income in that tax year, the tax due to HMRC would be £52,146 which is an effective rate of 5.7%.
By Mark Quinn
This article is published on: 28th May 2022
At the start of the buying process it is essential to sort out your residency status, financials and tax planning before you can buy a property in Portugal.
Our Portugal Manager recently spoke to Rebecca Thomson, Co-founder and Real Estate Consultant at Liberty Real Estate about the simple steps one must take before making the move.
Mark expertly explains how to apply for residency in Portugal, various visas and how to benefit from the NHR scheme.
Non-EU citizens, including the British post-Brexit, who wish to permanently settle in Portugal, must apply for a visa for the right to stay. EU citizens on the other hand have the right to freedom of movement and therefore have an automatic right to stay, so do not need to apply for a visa.
There are several visa options available in Portugal and the most common are the Golden Visa and the D7 visa.
Both visas allow access to the Schengen area, ultimate permanent residence or Portuguese citizenship, and a gateway into the Non Habitual Residence (NHR) tax scheme.
The key difference between the two programs comes down to one of cost versus flexibility. The D7 visa is clearly a lower cost route to Portuguese residency, both in terms of the fees and that there is no investment requirement as for the Golden Visa. However, the D7 route does have substantially longer minimum stay requirements.
So, if you are thinking of making a move to Portugal, or would like to benefit from the available tax incentives, watch the full interview in our informative video below.
