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Viewing posts categorised under: Tax in Portugal

Selling a property in Portugal | Tax relief

By Mark Quinn - Topics: Portugal, Tax, Tax in Portugal
This article is published on: 17th January 2022

17.01.22

As I covered in my last blog post, capital gains tax is charged on the sale of all property in Portugal irrespective of your residence status, and if the property qualifies as your main residence.

There are two situations in which the capital gain is exempt from Portuguese tax:

  • If you invest the proceeds of sale into another main home in Portugal, or EU/EEA
  • If the proceeds of a property sale are reinvested in an approved long term savings plan or pension

Any portion not used to purchase another main home, or reinvested in a savings plan/pension, will be taxed.

Whilst the first exception is relatively straightforward, the second exemption method is slightly more involved and there are certain conditions that must be met, such as (but not limited to):

  • On the date of transfer of the property the taxpayer, spouse or unmarried partner is in retirement or is at least 65 years old.
  • The investment into the structure is made within six months from the date of sale.
  • The property sold is the main home.
  • Withdrawals from the structure are limited to a maximum of 7.5 % p.a. of the amount invested.
  • You must declare your intention to invest the funds in such a structure on your tax return in the relevant year.

We can advise on the conditions and structure options in which to hold a qualifying investment.

I want to sell my property in Portugal | How much tax do I have to pay?

By Mark Quinn - Topics: Portugal, Property, Property Tax, Tax, Tax in Portugal
This article is published on: 11th January 2022

11.01.22

Capital gains tax is charged on the sale of all property in Portugal. Whilst this is less of a problem if you have found your dream home and want to spend many years living there, it is a more significant consideration if your intention is to buy a property for the short term or for investment purposes.

If you purchased the property prior to January 1989 there is no tax on the gain realised on sale. In all other instances, 50% of the gain is taxable and inflation relief can also be applied if the property was held for more than 2 years. The gain is then added to your other income for the year and taxed at the scale rates of income tax.

Despite the potential for high rates of tax on sale, there is main residence relief available if you reinvest the proceeds into another main home in Portugal (or the EU/EEA). Certain other conditions apply but in general, the gain will be exempt from taxation if all the proceeds are reinvested. Any portion not used to purchase another main home (or reinvested in a savings plan/ pension) will be taxed.

Property tax Portugal

In recent years a new relief has been introduced which allows reinvestment into a qualifying long term savings plan or pension. This will be looked at next when we discuss downsizing, as this is a  very useful relief for those wishing to downsize later in life.

These 2 reliefs can be used in conjunction with each other allowing for greater tax planning opportunities.

Please note, Non Habitual Residence (NHR) status does not have an impact on the taxation of Portuguese property. The tax treatment is the same for NHR and normal residents.

If you are non-Portuguese resident, all of the gain is taxable at 28% for individuals.

Tax efficient savings in Portugal

By Mark Quinn - Topics: non-habitual residency in Portugal, non-habitual resident, Portugal, Tax Efficient Savings, Tax in Portugal, UK ISA
This article is published on: 22nd December 2021

22.12.21

If you have arrived in Portugal from the UK there is a hope, or perhaps expectation, that there will be savings options similar to an ISA and other tax efficient investments.

Portugal does not have an ISA system but there is a similar investment, sometimes referred to as the “tax efficient, Portuguese compliant bond”. It is tax free whilst invested and has a very beneficial low taxation basis, especially if you require income from your investment.

The two big advantages with this structure are that there is no limit to the amount you can invest and it is portable to most other countries if you decided to move in the future.

There are many investment and currency options, so it is a simple and effective way of building a Portuguese compliant tax efficient savings structure to meet your personal objectives and needs.

Even if you have moved to Portugal to just take advantage of NHR (Non Habitual Residence status), and wish to return to your home country in the future, these structures can provide an incredible planning opportunity.

For example, if you return to the UK and the appropriate restructuring advice was to surrender the investment, the tax due on surrender would be proportional to the amount of time you have been in the UK. So, if you were non-UK resident for the whole period of ownership, then no tax is payable. If you were non-UK resident for 8 out of 10 years of ownership, the tax will only be calculated on the 2 year period of UK residence meaning you would benefit from an 80% tax saving!

For more information on the tax efficient, Portuguese compliant bonds, please contact us.

Moving to Portugal | Visa Options

By Mark Quinn - Topics: Golden visa Portugal, golden visa regime, Moving to Portugal, Portugal, Tax in Portugal
This article is published on: 19th December 2021

19.12.21

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.

Tax dimension
Whilst both visa options grant you legal residency in Portugal, one key difference with the D7 is that it automatically triggers tax residence status in Portugal. This may in fact be a positive thing for many people, given the existence of the NHR program which can result in substantial tax savings.

Whichever route you chose, please ensure you are implementing planning both before your move and after you have established Portuguese tax residency, and put in place planning now that will still be effective after the end of the NHR period.

We can analyse your situation and help decide whether tax residency and NHR status in Portugal is obtainable and will benefit you.

We have written dedicated guides to visa options and the Non-Habitual Residence scheme, both of which can be found on the Portugal page of our website.

How do I know if I am Portuguese tax resident?

By Mark Quinn - Topics: Portugal, Tax in Portugal, Tax residence
This article is published on: 8th December 2021

08.12.21

A lot of confusion occurs in this area – people often mistakenly believe they have to be in Portugal for at least 183 days to be considered tax resident here, but that is not strictly the case.

The rules state that you are Portuguese tax resident if:

  • you spend more than 183 days in Portugal in any 12-month period (these days do not have to be consecutive)
  • if your habitual/permanent residence is in Portugal i.e. your ‘home’ (there is no minimum day count for this criterion)

Generally a tax payer is Portuguese resident from the ‘first day’ or day of arrival.

If you move to Portugal mid-way through the year, Portugal allows for ‘split-year’ tax treatment. This means that you will only be liable to tax in Portugal from the time you become resident there i.e. the date you permanently move to Portugal up to 31st December. The same principle applies for those who choose to permanently leave Portugal.

This can provide advantageous tax and financial planning opportunities and that is why it is best to seek advice and start planning early. We have separate guides on visas in Portugal and residency that explain the process of becoming resident in more detail.

If you move to Portugal mid-way through the year, Portugal allows for ‘split-year’ tax treatment. This means that you will only be liable to tax in Portugal from the time you are resident there i.e. the date you move permanently move to Portugal up to 31st December. The same principle applies for those who choose to permanently leave Portugal.

This can provide advantageous tax and financial planning opportunities and that is why it is best to seek advice and start planning early.

I’m an Expat in Portugal – where do I pay tax?

By Mark Quinn - Topics: Portugal, Tax in Portugal, Tax residence
This article is published on: 6th December 2021

06.12.21

Many clients I have helped have been paying tax in the wrong country, often because of incorrect advice received in the past, or just because they were not aware of the rules.

It is critical to establish your tax residency position to avoid complications and possible penalties in future. I discuss these issues in this post and my next post later this week, with the latter focusing specifically on Portuguese tax residency.

If you are a Portuguese tax resident you are required to declare, and pay tax on, your worldwide income and gains in Portugal. If you are non-resident, then you are only liable to pay tax in Portugal on Portuguese source income.

If you have assets and/or income in more than one country, you will always have a “controlling tax authority” (CTA). This is not based on where most of your assets are located, where income is earned, ‘where you have always paid tax’ or where you ‘choose to declare tax’. Your CTA is normally the jurisdiction where you spend most time in that given tax year i.e. where you are tax resident.

Having said this, you may have to pay tax in more than one country. For example, if you are permanently living in Portugal and you have rental income generated in the UK, you will have to pay tax on that rental income in the UK first. However, as Portugal is your country of tax residence, you will also have to report the income in Portugal and potentially pay tax. Similarly, if you own and run a UK business, you may have to declare and pay tax and social security in Portugal instead of the UK if you are resident in Portugal.

Paying tax in the wrong country may not only result in heavy penalties but could also mean that you are paying more tax than you should and may affect any state pension, healthcare or social security rights you have.

There are rules in place between most countries to avoid tax being paid twice (double taxation agreements) but generally the highest rate of tax will always remain payable.

How is my pension taxed in Portugal?

By Mark Quinn - Topics: Pension in Portugal, Portugal, Tax in Portugal
This article is published on: 30th November 2021

30.11.21

Should I review my pensions if I live in Portugal?

Pensions are somewhat a confusing area in Portugal and the tax system does not easily accommodate the many different types of pensions individuals may have. We have seen many professionals report pensions in different ways, depending on their interpretation or understanding of the pension in question.

As there are many types of pension schemes and ways of funding them, maybe with overseas or UK elements, this area can be quite tricky to navigate and it is best to seek advice from a professional with a proper understanding of the details.

Speaking generally, for those with NHR, UK pension income is taxed at a flat rate of 10% in Portugal, unless you successfully applied for NHR before April 2020, in which case it is free of tax.

For normal residents, pension income is generally taxed at scale rates. There are some exceptions to this for example, annuities or certain pensions that are treated as long-term savings.

UK pensions are usually taxed at source but in most cases, you can ask your pension provider to make payments out to you gross; this avoids you having to reclaim the tax paid at source from HMRC. You will need to inform your pension administrator that you are no longer UK resident and obtain an ‘NT’ tax code.

The UK State Pension is taxable in Portugal and you can also ask for this to be paid out to you gross.

UK government service pensions are always taxable in the UK e.g. civil service, armed forces. Portugal does not tax these pensions or include them as income for reporting and tax purposes.

State pension systems

Taking your ‘tax free cash’

An important point in relation to the taxation of pensions is with regard to the pension commencement lump sum (PCLS) and withdrawals under “pension freedoms” arrangements.

In the UK, it is possible to take a lump sum of up to 25% of the value of your defined contribution (e.g. a personal pension or SIPP) pension pot tax free. A tax-free amount is also available from a defined benefit scheme (final salary scheme) pension although this uses a different calculation method. Please note, these PCLS amounts are not tax free in Portugal. As a general planning point, we would therefore suggest utilising any PCLS entitlement prior to becoming Portuguese tax resident. However, your personal circumstances will dictate the best course of action.

We recommend that your pensions are reviewed regularly and at least on an annual basis.

This is a highly regulated and complex area that should only by undertaken by suitably qualified professionals.

If you would like to discuss your pension, are concerned about charges or performance, or would like to know if moving or adjusting your pension is the right thing for you, please contact us.