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A balanced portfolio

By Mark Quinn - Topics: Investment markets and currency, Portugal
This article is published on: 2nd December 2022

02.12.22

Investment and fund management

There are several different investment management styles to consider and each will have benefits and drawbacks. The key difference are between a managed/active/discretionary route, and a passive/tracker approach, and this can be a divisive area within the investment industry.

In order to put into context the differences between these styles and which approach may be right for you, let’s first look at what a stock market index is.

An index simply measures the performance of a group/basket of shares. For example, the S&P 500 index tracks the performance of the shares in the largest 500 companies in America. As the US market is the largest stock market in the world, and the US is the world’s largest economy, it is often seen as a barometer for the health of global markets in general. The equivalent index in the UK is the FTSE 100 index.

Managed/active management/discretionary
Historically, most private investors would invest through a fund manager. In this way, you would pay an annual percentage fee to an investment institution to actively manage your investment i.e. make the buying and selling decision on your behalf.

The aim of investing in managed investments is to generate better investment returns than the stock market index as a whole, or another appropriate benchmark.

Discretionary investment is a specialist branch of managed investment whereby the manager has a greater range of investment powers and freedoms to make buying and selling decisions without your consent (although always within with the remit and investment powers that you grant at outset).

Over recent years there have been numerous studies to suggest that many fund managers do not achieve their aims of beating their respective benchmarks, and it has led some investors to favour a “passive” investment approach.

A balanced portfolio

Passive or index trackers
Passive investment does not employ a fund manger to make decisions, and instead of trying to outperform the market, you simply ‘buy’ the market as a whole. For example by investing in an S&P 500 tracker, you would effectively be purchasing the top 500 shares in the US stock market.

The key difference between the managed style is cost i.e. whereas a manager may charge between 1-2% per annum to manage your fund, you can access a tracker fund from as little as 0.1% which can make a huge difference to your fund value cumulatively.

Proponents of this approach accept they will only even achieve the return of the market as a whole (with no outperformance) but because you are spending far less in fees, believe they will do better over the longer term.

Proponents of active management on the other hand highlight the drawbacks of the passive approach viz. in a falling market, you will only ever track a falling market, tracker funds “blindly” sell what may otherwise be high quality investments at inopportune times, and that tracker investments can still be complex to understand, such as the difference between ‘synthetic’ versus ‘physical’ tracking methods.

Summary – balance pays
As my previous two articles have demonstrated, tax and investment planning generally involves shades of grey, rather than black and white solutions and in practice we do not believe either approach is the ‘holy grail’.

Rather each management style can offer benefits within a balanced portfolio. Holding passives can reduce the overall cost of your portfolio (thus increasing your net return) and using managed funds can completement by avoiding “blind” automatic sales and potential downside mitigation.

Whichever route you choose, minimising fund fees is crucial as it is biggest eroder of returns over time.

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

Is Portugal a tax haven in Europe?

By Mark Quinn - Topics: Portugal
This article is published on: 3rd November 2022

03.11.22

Portugal has long attracted expatriates looking for warmer climes, good food and a relaxing pace of life; but in recent years, the wide range of entry visas and attractive tax breaks for new residents have seen Portugal’s popularity soar.

With standard tax rates ranging from 14.5% to 53%, Portugal can either be crippling or a tax haven depending on how and where you structure your wealth.

New residents
Portugal introduced the Non-Habitual Residence (NHR) scheme in 2009 and made updates in 2020. It offers new residents to the country the potential for very low (or no) tax on pensions, capital gains and certain types of income for 10 years.

The greatest draws for expatriates are the favourable taxation of pension income: 10% for post-31st March 2020 NHRs (0% for pre), 0% tax on foreign dividend income and a 20% income tax rate on earned income for those working in Portugal in jobs deemed as ‘highly valued’ by the Portuguese government.

Another opportunity is for those with investment property portfolios. NHR can exempt capital gains tax in Portugal, which under normal circumstances would otherwise be taxed at progressive rates.

Existing residents
For those without NHR, Portugal can still be a tax-efficient home depending on how you structure your income and savings sources. With the correct planning and structuring, you can legitimately create a tax-favourable position and in some cases, single-digit rates of tax, which means that Portugal can still be more favourable than most individual’s home countries.

Is Portugal a tax haven in Europe

Optimise your move
Planning at least a year before your move is best to put yourself in the most favourable position. This will
allow you to take advantage of any tax opportunities in your home country and arrive in Portugal with the right structures, assets or income sources.

Caveats
The benefits of NHR do not automatically apply to all situations; planning is required to maximise tax-saving opportunities.

There are subtle nuances to the NHR scheme and international tax rules, meaning that in some cases it may not be beneficial to apply for NHR. It depends on how your income is generated and the interaction with your originating country and in some cases, we have seen this create an additional tax liability.

Another common complexity can be the interaction between taxation in Portugal and the former country. For example, what some people believe will be tax-free income may be taxable because of a nuance in the law e.g. income sources must have the ‘potential’ to be taxed in the originating country to qualify under NHR.

CLARITY WITH ADVICE

Paying zero or very low rates of tax is possible in Portugal as an NHR or standard resident, but it very much depends on each person’s circumstances. Planning (and potentially restructuring) is required.

As Chartered Financial Planners and Tax Advisers, we are in the best position to provide cross-border advice to expatriates and assist in creating compliant tax-efficient solutions.

For a complimentary initial consultation please contact Mark Quinn & Debrah Broadfield at +351 289 355 316 or mark.quinn@spectrum-ifa.com.
Alternatively, visit our financial guides page for tax updates and important information about living in and moving to Portugal.

Tax saving tips for Portugal

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

17.10.22

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
Tax saving tips for Portugal

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

What is a QNUPS, do I need one?

By Mark Quinn - Topics: Pension in Portugal, Portugal, QNUPS
This article is published on: 10th October 2022

10.10.22

Qualifying Non-UK Pension Scheme (QNUPS) was introduced by HMRC in 2010. In simple terms, it is a type of international pension that must adhere to certain HMRC rules to be recognised by HMRC. A QNUPS should not be confused with a QROPS (Qualifying Recognised Overseas Pension Scheme). This week, we will discuss the basics of QNUPS for Portuguese tax residents.

When might you need one?
Investors that have diverse investment needs may benefit as they can hold a wider range of assets than a traditional pension or QROPS. For example, it is particularly beneficial for holding residential UK property or for more adventurous investments such as a collection of fine wine or racehorses. But for the average investor looking to save towards or draw income for their retirement, this is unlikely to be a benefit worth paying for, there are alternative structures that could be more suitable.

Contributions paid to a QNUPS do not benefit from tax relief which is a disadvantage for savers who have qualifying contributions. However, the contributions to a QNUPS do not count towards the UK Annual Allowance, so can be a great way to save pension benefits in excess of £40,000 p.a. (2022/2023).

QNUPS

Are there really advantages?
The UK Inheritance Tax (IHT) advantage is not a reason to establish a QNUPS, and if set up for these purposes, HMRC may view this as tax avoidance and there could be severe tax consequences and we have seen penalties of up to 200% for failed schemes. It must be set up for genuine retirement purposes e.g. the individual could not contribute to a regulated pension.

Tax-free roll-up within the structure: this is also a benefit of UK-based pensions and other non-pension savings structures available in Portugal. A transfer to QNUPS is not required to achieve this.

Income tax benefits: all foreign retirement income will benefit under Non-Habitual Residence (NHR). Post NHR, depending on how the pension was funded, income can be taxed at scale rates of income tax, as an annuity or as a long-term savings vehicle. You do not need a QNUPS to access such benefits and it is worth noting here that there are non-pension-based investments that offer significant tax advantages, irrespective of NHR status.

Death benefits: in Portugal, only Portuguese-based assets are subject to Stamp Duty on death if the recipient is a non-directline ascendant or descendant. So, this tax can be avoided (if assets are passing to non-immediate family) by keeping any pension or investment structure outside of Portugal. You do not need a QNUPS to access this.

Currency options: Most EU-based savings and pension schemes can offer flexible currency investment and income options.

Cost: consolidation of assets can bring about cost savings, but a QNUPS requires a ‘platform’ or savings vehicle within it to hold investments. This adds an extra layer of cost to a client think carefully if the additional cost is worth the benefits of a QNUPS.

Income provision: you must take benefits from a QNUPS during your lifetime, you cannot leave the whole fund untouched as a tax-free legacy to your beneficiaries. This must be considered post-NHR when pension income can be aggressively taxed.

Political and legislation risk: QNUPS are based on UK legislation and in order to benefit from the UK IHT advantages must continue to do so, so are still at the mercy of the UK’s political and legislative regime.

Conclusion

QNUPS are a beneficial structure if used in the right circumstances however if miss sold, they can be expensive and unnecessary, as well as have a negative tax impact on death.

If you have or are considering a QNUPS and wish to discuss the cost and suitability for your circumstances, please contact us.

Can I keep my UK pension as a Portuguese resident?

By Mark Quinn - Topics: Pension in Portugal, Portugal
This article is published on: 26th September 2022

26.09.22

I’m asked the above question by many clients, and the short answer is – yes. Whether it is the best thing to do however is something that should be looked into on a case-by-case basis with a qualified pension specialist.
Here, we will look at the general tax position of UK personal pensions, Self-Invested Personal Pensions (SIPP), defined benefit schemes and qualifying recognised overseas pension schemes (QROPS) for Portuguese tax residents and the restructuring options available.

Income tax
For Portuguese tax residents, the income tax position of having a UK pension scheme and a QROPS is the same. During NHR, pension income will be taxed at 10% or 0%, depending on your NHR status. Post-NHR, generally the income will be subject to scale rates of tax.

From a UK perspective, generally, UK pension income will not be taxable in the UK and you can request to have it paid out to you in Portugal gross. This will avoid the onerous process of claiming back tax at source from HMRC. I say generally because if you have a UK-based government scheme e.g. civil service, military or certain NHS schemes, the UK retains the taxing right and the income will always remain taxable in the UK.

All pension income, irrespective of which country has the taxing right, must be declared in Portugal if you are a resident there. You will receive a tax credit for any tax paid to HMRC, so you will not have to pay tax twice on the same income.

There is no UK taxation on overseas pensions held by Portuguese tax residents as there is no UK dimension to consider.

Inheritance tax
The death tax position between having a UK-based pension and a QROPS is also the same i.e. both will be outside of your estate for UK Inheritance Tax purposes.

From a Portuguese perspective, as long as the scheme is not Portuguese based, it will not attract Stamp Duty (10%) on death.

UK Pensions in Portugal

What are the options?
Your options will depend on the type of pension you have, the scheme rules and whether you have already taken income or not, but generally, your options will be:

  • Keep your UK pension as it is
  • Transfer to alternative UK personal pension or SIPP
  • Move to a QROPS (Qualifying Recognised Overseas Pension Scheme)

Choosing to do nothing can be just as detrimental to your pension value as being misadvised, particularly in the long term. You should conduct regular reviews (at least annually) and address aspects such as your risk profile, capacity for loss, income requirements, rebalancing or switching underlying investments, and changes to your objectives and family circumstances.

Why would you consider a transfer QROPS?
QROPS is something that is pushed on expatriates by many offshore advisers as this is how fees are generated, and although the advice itself may not be ‘bad’, it might not be the ‘most appropriate’. So, if you are considering transferring to a QROPS we recommend that you get several opinions and ensure you only take advice from appropriately qualified advisers and reputable firms.

QROPS tends to be more expensive than UK based pension schemes because of the international dimension. For some individuals, a QROPS is the right thing but for others it is an unnecessary expense.

Some instances where a transfer to a QROPS could be beneficial are:

To reduce currency risk: a UK pension scheme will inevitably be denominated in Sterling, and this will involve regular currency conversions to meet spending needs in Euros. If the Sterling/Euro rate is low then your purchasing power diminishes. This leads some to look at overseas pensions which can be denominated in Euros or a mixture of most major currencies.

If you are in excess, or close to, the UK Lifetime Allowance (LTA):
for 2022 the UK LTA is £1,073,100. The trend over the last couple of decades has seen the LTA continually reduce.

Once you exceed the LTA, the excess is taxed at either 25% or 55% depending on how the income is taken. You cannot avoid this tax, as even if you do not access your pension, you will be tested against the LTA at age 75. Likewise, if you do access your pension before age 75, your benefits will be tested again at age 75 effectively taxing any growth since you first accessed your pension benefits.

The UK LTA cap does not apply to overseas schemes, so a transfer out can be beneficial for those close to, or over the LTA.

Qualified professional advice
You have worked your whole life to fund your retirement savings, and many are reliant on this to provide an income into old age or to provide a legacy to loved ones. Ensure you speak to the right people to protect your wealth. Spectrum has in-house pension specialists and can offer a complimentary and impartial analysis of your pension schemes.

We are Chartered Financial Planners (CII, UK) and Tax Advisers (ATT, UK) with a wealth of experience in both the UK and Portugal providing cross-border advice. You can contact us through the form below or by phone on +351 289 355 316 or by email at mark.quinn@spectrum-ifa.com / debrah.broadfield@spectrum-ifa.com.

Buying a property in Portugal to acquire a Golden Visa?

By Mark Quinn - Topics: Golden visa Portugal, Portugal
This article is published on: 23rd September 2022

23.09.22

Watch our recording of the recent ‘live’ seminar about investing in property in Portugal to aquire a Golden Visa;

Our panel of experts discussed the parametres around applying for the Portuguese Golden Visa scheme.

Plus, the health care system, taxes, renting out your holiday home, insurance and currency exchange in addition to explaining the buying and selling process in Portugal.

Our knowledge and expertise in the marketplace will allow us to assist you with the application professionally from start to finish.

The panel:

🇵🇹Joe Pyke – Berkshire Hathaway Home Services for your property questions
🇵🇹Steve Eakins – Lumon for all your currency management questions
🇵🇹Mark Quinn BA ATT APFS – The Spectrum IFA Group for tax and investment questions
🇵🇹André Nunes Melo – Nunes Melo Advogados Law Firm for your legal questions including the golden visa
🇵🇹Claudia Schuets – Quinta Finance for all your Portugal mortgage questions

Live webinar – 22nd September – Golden Visa in Portugal

By Mark Quinn - Topics: Golden visa Portugal, Moving to Portugal, Portugal
This article is published on: 20th September 2022

20.09.22
Golden Visa Portugal webinar

Thinking of investing in your dream property in Portugal
to acquire a Golden Visa?

On the 22nd of September, our panel of experts will be able to answer your questions about the Portuguese Golden Visa scheme, the health care system, taxes, renting out your holiday home, insurance and currency exchange in addition to explaining the buying and selling process in Portugal.

Our knowledge and expertise in the marketplace will allow us to assist you with the application professionally from start to finish.

Spaces are limited so please register your interest now
to avoid disappointment.

Please feel free to submit any questions or topics you would like to see discussed so that we can make these events as interesting and useful as possible for you.

Your expert panel:

🇵🇹Joe Pyke – Berkshire Hathaway Home Services for your property questions
🇵🇹Steve Eakins – Lumon for all your currency management questions
🇵🇹Mark Quinn BA ATT APFS – The Spectrum IFA Group for tax and investment questions
🇵🇹André Nunes Melo – Nunes Melo Advogados Law Firm for your legal questions including the golden visa
🇵🇹Claudia Schuets – Quinta Finance for all your Portugal mortgage questions

Golden Visa Portugal webinar

Buying a property in Portugal | Webinar

By Mark Quinn - Topics: Buying a property in Portugal, Portugal
This article is published on: 3rd August 2022

03.08.22
Buying a property in Portugal

Watch the webinar below

At the end of July Mark Quinn from The Spectrum IFA Group joined an expert panel to discuss the whole process of buying a property in Portugal.

The live event hosted Berkshire Hathaway Home Services and moderated by Lumon was attended by over 50 people from around the world interested in relocating to Portugal.

The questions and answers session touched on subjects such as the various visas options, obtaining a mortgage, overseas payments, wealth management and the legal process.

Our panel of experts based in Portugal

Moving to Portugal webinar
  • Joe Pyke – Berkshire Hathaway Home Services for your property questions
  • Steve Eakins – Lumon for all your currency management questions
  • Mark Quinn BA ATT APFS – The Spectrum IFA Group for tax and investment questions
  • André Nunes Melo – Nunes Melo Advogados Law Firm for your legal questions including the golden visa
  • Claudia Schuets – Quinta Finance for all your Portugal mortgage questions

UK investments living in Portugal

By Mark Quinn - Topics: Investment portfolios, ISAs, Portugal, UK investments
This article is published on: 2nd August 2022

02.08.22

Can I keep my UK bank accounts, Individual Savings Accounts (ISAs) and other investments?

Moving to a new country is exciting, although it does present challenges. New processes, bureaucracy and language, but it also may mean you have to reshuffle your finances.

Each person should seek individual advice when it comes to financial planning, but here I touch on commonly held assets, the main points that you should be aware of and what you can do about them.

Bank accounts
Whilst many expats will open a new bank account in their new country, most of us also keep our UK bank accounts, not only for practical reasons but also because we understand and feel comfortable holding them.

However, post-Brexit many UK banks are asking account holders living outside of the UK to close their accounts. This can pose a problem because if you have already moved to Portugal, it is unlikely that you will find an alternative UK bank that will be willing to accept new non-UK customers.

The Channel Islands and the Isle of Man are popular alternatives to the UK when it comes to banking, but you should be aware that these are considered ‘blacklisted jurisdictions’ by Portugal and therefore interest is taxed punitively at 35%, rather than the usual 28% or 0% under NHR (Non-Habitual Residence).

Individual Savings Accounts (ISAs)
Firstly, consider the tax dimension. They do not retain the tax exemptions when held by Portuguese residents. For (NHRs), interest and dividends are tax exempt during the 10-year period but realised gains are taxed at 28%. For non-NHRs, interest, dividends and gains are taxed at 28%.

But whether you decide to retain your UK ISA or restructure it will depend on your longer-term plans, some things you might consider are: how long you will stay in Portugal, do you need to make withdrawals, do you want to top up, can you make changes to the underlying investments if a Stocks & Shares ISA, or what are the returns on Cash ISAs?

If your move to Portugal is short-term, or if you are not certain that it will be your long-term home, then there is a case for retaining your ISAs. Although you cannot add to them whilst non-UK resident, you can continue to hold them, and once you return to the UK they resume their tax efficiency.

A planning point you may wish to consider if you have a Stocks & Shares ISA is to ‘rebase’ by selling and then immediately repurchasing the same funds within your ISA prior to leaving the UK to ‘wash out’ any taxable gains accrued to the point of your departure. This way, if you did decide to restructure, encash, or withdraw from the ISA as a Portuguese tax resident in the future, there would be little or no tax to pay in Portugal.

As a general guideline, if you believe your move to Portugal is long-term (as a rule of thumb, 5 years or more) then restructuring and starting an investment vehicle that is suitable for residency in Portugal would make sense for greater tax efficiency, amongst other reasons. If this is the case, planning well in advance is advantageous, as there is no tax on ISA closure for UK residents.

UK investments living in Portugal

National Savings & Investments (NS&I)
NS&I savings and Premium Bonds are popular products held by many UK nationals and are seen as ‘safe and secure’ as they are backed by the UK Treasury.

Aside from this point, they do require you to hold a UK bank account which could be an issue for some. The interest rates offered are low, well below inflation, so you are losing money in real terms and interest is taxable in Portugal, unless you have NHR.

Premium Bonds on the other hand offer no capital growth or income, only the possibility of winning a sum of money. These winnings in turn are taxable in Portugal, not tax-free as they are for UK tax residents – this could be disappointing if you do win that million!

Investments with UK-based Financial Advisers
Most significantly, Brexit brought an end to the passporting rights that allowed UK-based advisers to advise clients across the EU member states and vice versa. This means that many advisory firms may not have the right permission to continue providing advice to clients living overseas.

Obviously, this can be worrying for those who have worked alongside their trusted adviser for many years, but in reality, good financial planning and structures for UK residents are unlikely to retain the same benefits for those living outside of the UK.

Understandably, many UK advisers do not want to lose their clients, and whilst you can continue your relationship with your UK adviser and pay their fees, without the right permissions, you should be aware that they cannot service your accounts e.g. provide investment advice for portfolio rebalancing or fund switches, and more importantly, you might not have proper recourse if anything were to go wrong. This will not only affect your investments and performance, but you will end up paying for advice that you cannot (legally) take advantage of.

Likewise, if you hold offshore investments provided by EU institutions, they may not be able to accept instructions from a UK-based adviser if they do not have the right licenses.

Lastly, there are practical implications. Does your UK adviser understand the rules in your new country of residence? Are you missing out on tax planning opportunities, paying more tax than you have to because you could be structuring or drawing your income better, or have they fully understood the knock-on effect of their advice in relation to income tax, interaction with NHR, or taxes on death?

What can you do?
The overarching message is that Brexit has changed the landscape for establishing and maintaining our investments. Reviewing your personal finances is more important than ever to ensure that you are not hindered when managing and making changes to your investments and savings, but that you are fully protected and have recourse should anything ‘go wrong’.

We are UK-qualified Chartered Financial Planners and tax advisers, so have a firm grasp of the planning and issues UK expats face. We have also been living and working in Portugal for a combined period of 15 years, so we not only understand the local rules and regulations but also have vital local experience and knowledge. If you would like an informal, confidential initial chat at no cost to you, please get in touch.

Succession planning in Portugal

By Mark Quinn - Topics: Inheritance Tax, Portugal, Succession Planning
This article is published on: 22nd July 2022

22.07.22

How to protect your loved ones

Death and taxes are the two certainties, but it is surprising how many of us fail to properly plan during our lifetimes.

The key considerations for most of us in this area of planning are ‘control’ and ‘taxation’. This is ensuring that assets are passed to the right individuals, in the right proportions, at the right time with minimal taxation. But as expats, in order to ensure this happens, you must carefully consider the succession rules of Portugal, your originating country, and any interaction between the two.

Understanding the Portuguese rules
Unlike the UK, where you can generally leave your assets however you wish, Portugal has ‘forced heirship’ rules. These force you to leave certain proportions of your assets to specific family members and applies to your worldwide estate (except for non-Portuguese real estate).

For expats, the ‘Brussels IV’ regulation means that the rules of your country of habitual residence will apply, so forced heirship could apply to you unless you specifically elect for the succession law of your country of nationality to apply via your Will, or other appropriate legal documents. This must be done during your lifetime and cannot be changed after your death. But it is important to note that this does not affect the tax rules that apply, only the rules around succession, and these two issues should be looked at independently.

There is no inheritance tax in Portugal. Instead, Stamp Duty is due at 10% on assets located in Portugal that pass to someone other than a spouse or direct line ascendants or descendants. This tax is paid by the recipient irrespective of where they live and must be paid before receiving the asset. It is due within 6 months of the death, so for large gifts and inheritances, this could be a problem for your loved ones.

Impact of your nationality
A particular issue for British expats is that their liability to UK inheritance tax (IHT) is not determined by where they live (as with Brussels IV), but by their domicile. This means that even if you live in Portugal, and have done so for many years, you can still be subject to UK IHT as well as Portuguese taxes. There are rules in place to avoid double taxation, but again this will have to be sorted out by the recipients and your executors which might be complex and costly.

It is possible to shed your UK domicile however this is very complex, so specific advice should be sought.

Succession planning in Portugal

Tax mitigation
IHT is sometimes considered a voluntary tax as with the right planning, there are many steps you can take to reduce the tax liability on your estate and gifts. From a Portuguese perspective, this can be as simple as holding your assets outside of Portugal. For UK nationals, the planning is likely to be a little more complex such as utilising all allowances and the gifting rules, trusts or trust-like structures, or domicile changes.

What about Wills?
UK Wills are valid under Portuguese law but practically, it is likely to be more difficult, costly, and time-consuming for your executor or heirs to go through the bureaucracy in Portugal. We suggest that you have a separate Will for each country in which you hold assets. They should acknowledge the other Wills, however, they must not override or conflict with each other.

Even if you already have a plan in place, it is important to review this periodically, or if your family or financial circumstances change.

With careful planning and our specialist cross-border advice, we can help you create the right estate plan for you and your family.