Tax saving tips for Portugal

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

1. Review your asset base, do you intend to restructure your investments for life in Portugal? Look at whether they can be surrendered tax-free or at a reduced rate in your originating country, rather than leaving it until after your move
2. Utilise any remaining carried forward losses and income and capital gains tax allowances prior to leaving your originating tax jurisdiction
3. Take your 25% tax-free pension commencement lump sum (tax free cash) if you are UK resident. This is not available following your move to Portugal and will be taxed
4. If you are moving from the UK and are non-UK domiciled, consider using the remittance basis to substantially reduce certain taxes before your move
5. If your UK-based pension savings are close to or above the UK Lifetime Allowance (LTA) of £1,073,100 you must consider LTA protection. Any amount above this is taxed at 25% or 55%, depending on how the pension is drawn down. This tax could be avoided or mitigated

After moving to Portugal

1. Apply for Non-Habitual Residence (NHR). In the vast majority of cases it is beneficial but please seek personalised advice to confirm how this will affect your position
2. If you are NHR, restructure your income sources and assets to take advantage of the tax breaks
3. Holding investments directly can give rise to unnecessary capital gains and income tax. Using a wrapper such as a pension scheme, company or life assurance bond, could substantially mitigate tax
4. Conventional planning dictates that you should maximise the value left in pension schemes given they are free of UK Inheritance Tax but the NHR regime turns this conventional wisdom upside down as you have a 10-year window to extract pension funds at a very low tax rate of 10%, after which tax can rise to over 50%. Advice must be sought before deciding to do this and must be tailored to your family situation
5. Do things in the correct order. For example, if you have losses on certain investments realising these first could allow you to offset these against future gains but if you realise the gain first you cannot do the opposite
6. Targeted withdrawal strategies. Funding your lifestyle from certain sources rather than others can save substantial amounts of tax. These may need to be switched over time e.g. when the NHR period ends
7. The UK Non-resident Capital Gains Tax rules. If you are selling UK property as a Portuguese resident, only gains made from 6th April 2015 are taxable in the UK with no further tax to pay in Portugal if you have NHR
8. If you are selling your home in Portugal capital gains tax is due on 50% of the gain at scale rates. There is main residence relief if you use 100% of the proceeds to buy a new home, but a new relief was introduced which allows certain individuals to invest the proceeds in a pension or investment instead, allowing you to release capital and provide a future income
9. You can submit joint tax returns as a couple (you do not have to be married) in Portugal so you can take advantage of your partner’s unused tax bands
10. Take advantage of the Portuguese personal deductions. By using your fiscal number when making certain purchases you can reduce your annual IRS tax bill e.g. €250 per taxpayer for general family expenses, €1,000 on health expenses etc