Viewing posts categorised under: Portugal

Can I keep my UK pension as a Portuguese resident?

By Mark Quinn
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.

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
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

Contact the office here in Portugal to find out more

Live webinar – 22nd September – Golden Visa in Portugal

By Mark Quinn
This article is published on: 20th September 2022

20.09.22

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:

Buying a property in Portugal | Webinar

By Mark Quinn
This article is published on: 3rd August 2022

03.08.22

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

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

View our guides to living in Portugal

UK investments living in Portugal

By Mark Quinn
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.

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?

Download our finacial guides to living in Portugal

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
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.

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.

Buying a property in Portugal seminar

By Mark Quinn
This article is published on: 18th July 2022

18.07.22

Are you thinking about buying a property in Portugal?

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:

Joe Pyke from Berkshire Hathaway Home Services Portugal Property
André Nunes Melo from NMA – Nunes Melo Advogados
Steve Eakins from Lumon Currency specialists
Claudia Schuets from Quinta Finance

Portuguese capital gains tax – changes from Budget 2022

By Mark Quinn
This article is published on: 27th June 2022

27.06.22

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.

Download your financial guides to living in Portugal here

Investment Property in Portugal

By Mark Quinn
This article is published on: 21st June 2022

21.06.22

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.

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 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%.

Are you domicile or non-domicile?

By Mark Quinn
This article is published on: 16th June 2022

16.06.22

Domicile is often confused with residence, but it is quite distinct

The law of domicile is highly complex and has wide-ranging consequences on an individual’s tax position, as the recent furore surrounding Akshata Murty illustrates, but for most British nationals here in Portugal, domicile is a key factor for UK Inheritance Tax (IHT).

Individuals only have one domicile at a time and a very loose definition is ‘where you have a permanent home’. In my experience, this is often misunderstood and individuals who thought they were ‘definitely non-UK domiciled’ after living in Portugal for several years learn that in fact, they are very much still UK domiciled.

The are several types of domicile, namely ‘Origin’, ‘Choice’, ‘Dependence’ and ‘Deemed’ but here I will focus on the first two. Firstly, ‘Origin’. This is acquired at birth, usually from your father (or your mother if they were not married at the time of your birth). This is never fully lost but can be suspended by acquiring a new domicile of choice, but it is adhesive and will revive if the new domicile is lost.

Acquiring a domicile of choice involves forming a clear and fixed intention for a new country to be your permanent home, and therefore actually requires permanent residence.

Being non-UK domiciled is highly advantageous for UK IHT
The worldwide estates of UK domiciles are assessed for IHT in the UK, even if you live elsewhere. For non-UK domiciles, generally only UK based assets are assessed. It is worth noting here, that assets that derive their value from the UK but are held elsewhere e.g. company shares, will be deemed to be UK assets.

Shedding UK domicile is tricky
The burden of proof lies with the person claiming the change and the standard is particularly onerous. There is no checklist and your circumstances are looked at as a whole. Some factors that might be considered are family and business ties, location of friends and social interests, location of assets, acquisition of citizenship or languages spoken.

The adhesive nature of domicile is highlighted by Richard Burton’s failed attempt to change his domicile, which resulted in an IHT bill of £2.4m. Despite him living in Switzerland for 26 years, structuring his assets appropriately and subsequently dying there, the revenue was successful in arguing that his ‘mind and heart’ still remained in Wales. Their evidence being his choice to have the Welsh flag draped over his coffin and being buried with a book of Dylan Thomas poems. As you can see, what can be considered is very broad.

Traps
Non-domiciles by choice with a UK domicile of origin must be very careful with return visits to the UK, especially if they have a second home there. If they die as UK tax resident (by exceeding their day count) and were also deemed UK tax resident in one of the two preceding tax years, they are automatically deemed UK domiciled and their worldwide estate is subject to IHT.

A new domicile is retained until the new country is permanently abandoned, but unless another one is acquired immediately, your UK domicile of origin will revert automatically – even if you never set foot in the UK again.

Mixed domiciled couples must be careful. Normally assets passing between spouses are IHT exempt, but assets passing from a UK- domicile to a non-UK domiciled spouse are only exempt up to £325,000 unless they elect to be treated as UK domiciled for IHT purposes. This has a knock-on effect on their subsequent death. Usually, any challenge will come after your death, and it is up to your personal representatives to prove your intentions in life and gather evidence – which may not be possible, so you must ensure your record-keeping and evidence is strong.

Keep up to date - join our series of seminars and webinars in Portugal