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10 common financial planning mistakes expats make

By Portugal team
This article is published on: 13th February 2023

Whether you are living in Portugal or thinking about a move, you will have heard lots of tips and tricks from friends and done your fair share of Googling. Here we list some of the most common planning mistakes so you can avoid them.

1. Planning too late
Most people tend to be reactive rather than proactive when it comes to sorting out their finances. Planning ahead of your move will allow you to take full advantage of all the windows of opportunity and the tax savings Portugal has offer. But if you have already moved and have not made plans yet, it is not too late to improve your long-term position. Don’t put it off.

2. Syncing for a different system
Some people do not review their assets and are of the view that their planning has worked just fine up to now. But Portugal’s system is markedly different from the UK and you could unknowingly be doing yourself out of benefits and tax breaks, or even worse, creating further (unnecessary) tax liabilities.

3. Not applying for Non-Habitual Residency (NHR)
Applying for NHR is generally a financial “no-brainer”. Just because you think you don’t need it now, does not mean it may come in handy in the future. You only have a small window of opportunity to apply for NHR once you become a resident of Portugal, so do not miss out. It could save you thousands in taxes in the long run.

4. Withdrawal strategies
Taking money from the wrong place, at the wrong time or at an inopportune time can be expensive and create tax liabilities that could otherwise be avoided. If possible, you should plan at least 12 months in advance and take advice if you are not sure of the best way forward.

5. Not paying attention to fees and charges
Charges can profoundly affect returns but can be disguised by good market performance and/or ‘clever’ advisers. Read the small print, ask questions and shop around to find out if you are really getting a good deal.

financial planning mistakes expats make

6. Focusing on return and not risk
Many investors focus solely on headline performance and do not consider investment returns in the context of risk. This is important, particularly if you are a balanced or cautious investor. If two portfolios generate an average of 5% a year but one is very high risk and the other is very low risk, clearly one portfolio is better than the other.

7. Not knowing your ‘number’
Do some cash flow planning. Many are unaware of how much they can safely spend based on their current wealth, pension provision and the need to plan for unforeseen expenses. They either spend too much and jeopardise their future lifestyle or worry unnecessarily and underspend, possibly missing out on a lot of fun!

8. Not reviewing enough or reviewing too much
We suggest you review your finances at least every 12 months. Times change and as new solutions become available, costs usually go down. But equally micro-managing and frequent changes are also counterproductive as it usually involves cost and stress. Get the right balance.

9. Not shopping around
If you meet a professional you like, that is great. However, shop around. Meet others and stress test the advice and proposition. Just because someone seems nice, does not mean they are the best person for the job.

10. Not planning for UK Inheritance Tax
Many believe that once they are out of the UK inheritance tax will not apply. This is wrong as it will always apply if you are UK domiciled. Moreover, you could also have a Portuguese tax liability meaning there could be double taxation. Ensure that you address estate planning as early as possible.

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