Viewing posts categorised under: Portugal

Investment portfolios | The Principles of Success

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

18.05.22

The world of investments can be intimidating, even for the most seasoned investor. Here, we will put aside the jargon and push past the hype of ‘the next big thing’, and instead focus on the key principles that every investor should know when building a portfolio of investments; irrespective of how engaged or involved you wish to be.

Ideally, you should look at your assets as a whole – your pensions, property, savings and investments, rather than at each area or structure in isolation. This way you can apply the principles to your wealth as a whole and be in the best position to potentially meet your financial objectives.

Asset allocation is key to investment success
Asset allocation is the percentage of each type of asset class making up your overall investment portfolio. In turn, asset classes are groupings of similar types of investments such as cash, equities, commodities, fixed income, or real estate.

The key principle behind asset allocation is to include asset classes that behave differently from each other in different market conditions to reduce risk and generate potential returns. For example, if equities are falling in value, certain fixed income assets may be rising.

The goal here is not solely to maximise returns but to blend your holdings to meet your goals, whilst taking the least amount of investment risk. The right allocation for you will depend on several factors such as your willingness and ability to accept losses, your investment time frame, and your future needs for capital – unfortunately, there is no one size fits all.

Many studies have shown that asset allocation is the most important driver of portfolio returns, so getting this first step right is critical.

Diversification to reduce risk
Once you have decided on the right asset allocation for you, you must then pick the individual types of holdings or investments within each asset class. Each asset class is broken down into subclasses, for example, fixed income includes holdings such as fixed deposits, gilts and government or corporate bonds.

It is not enough to simply own each type of asset class; you must also diversify within each asset subclass. For example, taking corporate bonds which is a type of fixed income asset class, you can hold them in many different types of companies, industries, currencies, countries, or long or short term.

Rebalancing
As assets perform differently over time, the initial percentage asset allocation will deviate over time. A typical example is the huge increase in the US stock market over the last couple of years which, whilst good for investors’ returns, will have increased the level of share exposure. This increase in the value of equity holdings because of the sustained rise will lead to increased risk across the portfolio as a whole.

This can be solved by regular rebalancing to ‘reset’ the portfolio to your original asset allocation. This involves selling holdings that are overweight and buying ones that are undervalued.

Rebalancing also provides the ideal opportunity to revisit your financial goals and risk tolerance, and to tweak your asset allocation accordingly.

Long term perspective and discipline
As humans, our emotions can lead to poor decision making when it comes to investing. Decisions that seem logical in daily life can result in poor investment returns, with many retail investors selling through fear at the very point they should be buying at lower prices, and conversely, buying at much higher prices during a gold rush.

It is vital for most investors to keep a disciplined approach as it is easy to get caught up in the daily noise of the markets.

Minimise costs and maximise tax efficiency
Einstein described compounding as the 8th wonder of the world and the effect of compounding applies to fees. A charge that might seem small at the beginning can turn into a significant cost over time and research has shown that lower-cost funds tend to outperform in the longer term.

As a simple example, assume a €100 investment and no growth. After 10 years, an annual charge of 2% will result in €82, a 0.2% charge would result in €98.

Focus on minimising fund, structure and adviser fees. In the world of investing, more expensive does not necessarily mean better.

Tax is an often-overlooked cost, which if minimised can lead to the same positive compounding effects over time. This is done by ensuring that your investment portfolio is structured correctly for your resident status, and it might be different planning for normal residents, Non-Habitual Residents, or depending on if your move to Europe is for the rest of your life or if you intend to return to your home country in the future.

Withdrawal strategies
If you are taking income from your investments, you should consider the way in which you do this and the order. Not only will this affect the type of investments you hold within your portfolio, but it could also affect how you hold your portfolio and provide tax planning opportunities or pitfalls.

Focus on total return
With interest rates at historically low levels, it is difficult to rely solely on income returns in this investment environment. The total return is a truer picture of performance and takes into account the capital appreciation as well as the income received.

Be boring!
To quote Warrant Buffet, one of the world’s most successful investors: “Lethargy, bordering on sloth should remain the cornerstone of an investment style”.

Do not try to chase returns or the trends in investments – stick to tried and tested assets. At Spectrum, we only use investments that have worked over the long term, are easy to understand, daily tradable and transparent.

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5 reasons cash might not be king

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

16.05.22

In the words of Warren Buffett, “The one thing I will tell you is the worst investment you can have is cash”.

If one of the world’s most successful investors believes this, let’s look at some of the reasons why holding large amounts of cash is bad for long-term financial planning.

Inflation
We all need access to cash for daily spending and emergencies, so it is important that you hold enough cash on deposit for if the boiler breaks! But holding large amounts of cash over long periods is damaging when the interest rates are well below the rate of inflation.

To illustrate this in real terms, if your annual spending was £10,000 in 2011, you would need £12,968 in 2021 to make the same purchases as inflation averaged 2.6% p.a. However, during that same period, the average savings account interest rate was 1.6% p.a. so the same £10,000 in a bank account would only have grown to £ 10,160.

Low-interest rates
Interest rates offered by banks to customers rarely beat inflation, so using this as a long-term savings strategy is not ideal.

According to the most recent data available provided by the Bank of England and Portugal, the average UK deposit interest rate offered in December 2021 was 0.3% and the average rate in Portugal was 0.06% as at December 2020.

With inflation currently sitting at 5.4% and 3.3% for the UK and Portugal respectively, we can see that inflation will rapidly erode the value of your savings.

Taxation
One of the commonly overlooked factors when making any investment is the tax consequence. In the UK there are great tax-free savings vehicles such as ISAs, but here in Portugal, the choice is much more limited but that does not mean that tax-efficient savings are not available.

For those with NHR, there is not so much of a concern as foreign earned interest is tax-free. However, for normal residents, all interest paid is taxable at 28%. Please note, interest from bank accounts held in blacklisted jurisdictions such as Guernsey, Jersey and the Isle of Man is always taxable at 35%.

Investments usually outperform cash in the long-term
Most people feel more comfortable holding cash, maybe because they do not understand the stock market or they are reluctant to seek financial advice.

It is true, investing in the stock market does carry some risk and you will experience volatility which can be unnerving, but over the long-term markets have outperformed cash.

The Barclays Equity Gilt Study 2019 analysed cash, equity and gilt performance from 1899 to 2019 and it found that £100 invested in cash in 1899 would be worth £20,000 in 2019; a stark contrast to the £2.7m it would worth if invested in equities over the same period.

We might not all live to see returns over 120 years, but even with the global health and economic crisis today, many global stock markets finished the year higher than they started. For example, Morningstar’s Global Markets index was up nearly 15% by mid-Dec 2021, whilst banks were offering returns below 1%.

Dividends
Stocks and shares pay dividends in addition to the expectation that their price will increase. Cash only pays interest, and with inflation, there is a near-certain expectation our cash value will erode in real terms over time.

Lastly, what are the alternatives? Simply put, investing. What you should be investing in and where will be dependent on several factors such as your goals and the risk you can, and are prepared to, take. If you would like to discuss your options, please get in touch.

Are you interested in our seminars & webinars about tax & financial planning in Portugal?

Financial adviser in Portugal

By Mark Quinn
This article is published on: 19th April 2022

19.04.22

“British expats, your financial adviser may well be a bandit!”, this was the title of a 2016 article by Jason Butler in the Financial Times. He painted a depressing picture of the state of the advisory market for expats and some of his key observations still hold today.

So what are some of the issues you need to be thinking about when you are seeking a Financial Adviser in Portugal?

Fees
One of the main points from the FT article was the importance of focusing on fees and charges. Butler states that unlike the UK, which abolished commission in 2012, many expat destinations suffer from “eyewatering expensive financial products laced with enormous commission payments”.

It is therefore important to have a clear understanding of what you are being or will be charged, and importantly that these are fully disclosed. This is something not all advisers have done and is fast becoming an issue for them as a result of the MIFID II directive which is forcing them to disclose their charges.

Qualifications
The other area of focus was on qualifications, with Butler citing a lack of qualifications in general. In fact, in Portugal, there is no minimum qualification requirement so in theory, anybody can set themselves up as ‘advisers’.

In the UK, the minimum standard to advise is ‘level 4’ but the gold standard is ‘level 6’, which is Chartered status. These higher qualifications are awarded by the CISI and CII (UK) and the average pass rate for the Chartered status examinations was just 56% in 2020.

You should also seek advisers who are tax qualified, or at the very least work with a firm or individual that is, and who fully understands cross-border issues. This is important given the relatively complex nature of expats’ financial affairs.

Download my financial guides to living in Portugal

So, why might you need a financial adviser?
If you are considering setting up or reviewing a complex structure such as a pension or investment, looking to put inheritance and succession planning in place, or restructure your affairs for tax efficiency, you should seek professional advice so you do not end up with something that is unsuitable or has unforeseen negative implications.

Your adviser’s role is to help you achieve your objectives by advising you on the best course of action to take and if necessary, research the market to find suitable structures that can be tailored to your personal situation.

How to choose your adviser and advisory firm?
Firstly, you should shop around and meet with several advisers to discuss your circumstances. Advisers will usually offer an initial discussion free of charge and this will give you the opportunity to evaluate them, their firm and gauge if you can work together long term.

Some initial questions you should be considering are:

Is the firm regulated?
Are they able to offer impartial advice or are they restricted in what companies and products they can offer due to exclusivity agreements?
Do they have indemnity insurance?
Is the adviser qualified? If so, to what level?

You should also do your own research but bear in mind, some firms are known to remove any negative reviews from the internet.

What if you already have a financial adviser in Portugal?
David Blanchett, the head of retirement research for Morningstar Investment Management, wrote the following for the Wall Street Journal in February 2020, “the adviser-and advice-who was a good fit for you 10 years ago, may no longer be a good fit now. Even if you have no major complaints about the service you have been getting, it is a good idea to ‘shop around’ every few years. You may not realize that you are missing out on better advice or costs until you do a comparison. Conversely, you may reinforce that the adviser you have still is the best fit.”

Where am I resident and where should I be paying tax?

By Mark Quinn
This article is published on: 12th April 2022

12.04.22

There is a lot of confusion around the difference between residency, tax residency, Non-Habitual Residency and domicile so this week I will try and cut through this complexity.

Legal residence
Legal residence is the right to reside in a country. So, if you are an EU citizen, you have the automatic right to reside in any other EU country without the necessity for a visa. If you are coming from outside the EU, you must apply for a visa to establish your residency rights.

Legal residence is important as it determines how long you are allowed to spend in a country and your right to benefits such as healthcare and social security. Legal residence however does not impact or determine your tax status.

Tax residency
Generally, tax residency is determined by your physical presence in a country and Portugal, along with many other countries, uses the 183-day rule for determining tax residency.

Understanding your tax residency is important because it determines which country has the taxing right over you and can avoid double-taxation issues when you have links to more than one jurisdiction.

It is possible to have legal residence in Portugal, but not actually be a tax resident e.g. if you have the right to stay in Portugal but you do not spend enough time in Portugal in a given year to be considered tax resident.

Non-Habitual Residence (NHR)
NHR gives successful applicants a special tax status in Portugal for 10 years, but its name is somewhat misleading, as you must be a resident to apply for it.

‘Non-habitual’ actually refers to the requirement that you must not have been resident in Portugal in the 5 years prior to application, so it is aimed at attracting new people to Portugal.

Domicile
Domicile is something that is often confused with residence. It is a very complex area, but the very loose definition of domicile is ‘where you are considered to originate from’. It is a common-law concept and is most likely to be a consideration for British nationals, individuals married to British nationals, or those who are not British but either hold assets in the UK or spend a considerable amount of time in the UK.

Your domicile does not affect your income tax position in Portugal but it can have tax implications, most notably UK Inheritance Tax. (We will elaborate on domicile in next week’s article).

Myths

Many people are under the misconception that, as long as they are paying tax somewhere, they are meeting their obligations but it does not work that way. It is crucial you have a clear understanding of where you are resident to avoid being taxed in more than one jurisdiction
Registering yourself in Portugal does not automatically make you a tax resident. It is determined by your physical presence, so it is important to check your tax residency every tax year, as it could change
Your nationality or citizenship does not change by coming to live in Portugal and becoming resident, although you do have the option of applying for Portuguese citizenship after 5 years

Planning

Have a clear understanding of the tax residency rules of the country you are leaving. e.g. you can be tax resident in the UK by spending as little as 16 days there, or if leaving Spain a presumption of residence can remain if your family or your economic interests remain there
Prior to departing your current country of residence, utilise any remaining annual allowances and pension contributions, consider reorganising your affairs via inter-spouse transfers, and unwind any structures free of tax that may otherwise be taxed on arrival in Portugal
It may also be possible to create periods where you are not considered tax resident in any country or establish residency in another country prior to moving to Portugal for tax planning purposes

Mark Quinn is a Chartered Financial Planner with the Chartered Insurance Institute and Tax Adviser, qualifying with the Association of Tax Technicians.

Download my financial guides to living in Portugal

Measuring investment performance

By Mark Quinn
This article is published on: 11th April 2022

11.04.22

There are several different ways of measuring your investment performance, and I will run through some simple tips to allow you to dig deeper into your portfolio.

Firstly, do not forget to factor in fees such as adviser and management fees and structure costs when looking at returns. I have seen the cost of some investments run as high as 4% p.a. through hidden commissions and explicit charges. These have been disguised by strong market performance over recent years, but are likely to be exposed if we experience leaner years in markets in the future.

Simple benchmarking
A simple and quick method of comparison is looking at interest rates on cash accounts. If your investment returns are generating the same returns as cash on deposit, why are you taking the market risk?

Similarly, take into account inflation. If you generate a 3% return and inflation is 2%, your net return is just 1%; is this what you thought you were achieving?

Lastly, look at what similar passive investments have done. These types of funds simply track a stock market index and are inexpensive. If you are paying a fund manager to outperform and add value by trying to achieve higher returns, have they done this?

More in-depth methods

Market indices
A market index tracks the performance of a group of shares or other investments e.g. the S&P 500 index which tracks the performance of the largest 500 shares in America. They can be a useful barometer for the ‘health’ of an investment market as a whole but it is important to use them appropriately.

For example, you cannot meaningfully compare the performance of the S&P 500 index (100% shares) with a portfolio that consists only 40% of shares. Similarly if you are comparing a euro denominated portfolio with the US market which is denominated in dollars, then again this is not necessarily an appropriate comparison.

The downsides of using indices as a comparison are therefore addressed by the use of:

Peer group
A peer group allows you to compare investments that are similar in nature e.g. a specific class of investments or geographical region, and because you are comparing “like for like” it can be a more meaningful comparison tool.

Morningstar.com is a particularly useful tool in this respect and can guide investors with regard to an appropriate benchmark and peer group.

Quartile rankings
These are used to compare returns of investments in the same category over a period of time. Investments in the top 25% are assigned quartile rank 1, the next 25% quartile 2 etc.

They can be useful in tracking consistency – what is important is not the quartile ranking in any one period, but they allow you to track trends over multiple periods and time frames.

There is no one way, or right way, to compare performance and you will likely need to combine several measures to get a more accurate reflection of performance. Even more importantly, this should be done regularly to ensure you are doing all you can to achieve your financial goals. Finally, you should take into account the risk you are taking to achieve a set level of return, and this will be the focus of a future article.

If you would like to discuss your performance or how best to build your own portfolio of investments, please get in touch.

Planning for Non-Habitual Residence | Portugal

By Mark Quinn
This article is published on: 4th April 2022

04.04.22

The Non-Habitual Residence (NHR) scheme has been a great success in attracting new residents to Portugal seeking a favourable tax regime and is also the ‘icing on the cake’ for those moving to Portugal for lifestyle reasons.

NHR is a preferential tax status granted by the Portuguese government to new residents and lasts 10 years. I will not write about the specific benefits as we have produced a dedicated NHR guide which is available on our website. Rather, I wanted the focus of this article to be on the planning that is required because the benefits of NHR are not automatic; you have to plan to make the scheme work for your specific situation and objectives.

When talking with clients, I break down the planning required into three phases: prior to arrival, during the NHR period, and following the expiry of the NHR status.

The planning required before arriving in Portugal involves:

Utilising any tax breaks and exemptions in your home country. For example, in a UK context, you may wish to close any investments you have that work from a UK perspective but are not efficient in Portugal such as Individual Savings Accounts (ISAs). ISAs are tax free in the UK, but if you wait until you establish residency in Portugal to surrender, you are likely to incur unnecessary taxation
If you are relocating from countries such as the UAE or Singapore, you may wish to consider realising capital gains prior to departure
Considering taking advantage of your Pension Commencement Lump Sum entitlement (25% tax free cash) from pension schemes, as this is lost when you become a Portuguese resident

Download my guides on moving to Portugal here

Planning for Non-Habitual Residence in Portugal

During the NHR period it is important to:

Maximise pension income opportunities as NHRs benefit from a flat tax rate of 10% as opposed to rates of 20%, 40% and 45% in the UK. There is even the argument that any pension schemes should be fully depleted during the 10 year window, although this does have to be balanced against the inheritance tax efficiency of retaining money within a pension scheme
Plan well in advance of the 10 year period and ideally look to establish structures that can be effective post NHR. If your position does not allow for immediate restructuring and is tax efficient under NHR but not post-NHR e.g. property portfolios, you should start reviewing your position again around years 7-8 of the NHR period to prepare for life after NHR
Review your affairs regularly to take account of personal, family or legislative changes
For those of you taking salaries or a combination of salary and dividends from companies in the UK, you may wish to re-weight the focus to a dividend only strategy

After the end of the NHR period, you become a standard Portuguese tax resident and will pay tax at the prevailing rates. The effectiveness of your position is determined by the planning you have implemented during the first two periods.

A few caveats for you to consider:

There are subtle nuances to the NHR scheme and international tax rules meaning that in some cases it may be in your best interest not to apply for the NHR regime
For those of you enjoying the 0% tax rate on pension income (which applied to NHRs prior to April 2020), the planning will differ
If you are a non-UK domicile, there are further issues and tax-saving opportunities to consider, and again, delicate planning is required in this area to ensure success

As always please seek advice early and as the only UK Tax Adviser and Chartered Financial Planner in Portugal, I can analyse your situation from both a UK context and Portuguese perspective.

Download my guides on moving to Portugal here

Difficult questions your financial adviser may not want to answer

By Mark Quinn
This article is published on: 30th March 2022

30.03.22

I like being asked tough questions –

It shows that clients have a real grasp of the key issues involved, which is great. It forces me to regularly reconsider the advice I give, and to make sure it continues to be the very best and most cost-effective solution. Also, and speaking from bitter personal experience of poor, disjointed advice I received in an area on which I am not au fait (renovating my property), I truly believe that clients are in a much more powerful position if they are aware of all the salient facts and issues.

With that in mind, and to put you in the most powerful position in your existing adviser relationship, I would start by getting the answers to the following:

Are you truly impartial or are you restricted to only recommending certain structures and funds? I come across many clients with the same structure managed by the same investment manager. How can one structure and fund be the most appropriate for all clients with a wide variety of issues and situations?
What qualifications do you have to advise? When you visit a professional one assumes they are qualified and good at what they do. It is remarkable therefore that many ‘advisers’ operate in Portugal without qualifications, and some even purport themselves to be tax advisers who do not have any formal tax qualifications. Those coming from the UK may be aware that ‘Chartered Financial Planner’ is the gold standard for advising clients, and ‘level 4’ is the minimum level of qualification required to advise.
How much am I being charged? One of the most damaging issues to the performance of your portfolio are the charges that are being taken from your policy. Many times, these are ‘bundled’ or paid discreetly out of the back end of the product. Ask for an explicit breakdown in writing between each fund’s ‘Ongoing Fund Charge’, product/structure charges and the fees or commissions your adviser is taking, and from where.

Find out more about Mark Quinn here

Have you disclosed the full charges to me? If not, why not? This is a contentious issue for some firms at present as, due to an EU directive, they now have to inform clients if they have not disclosed the true costs of the investments that they have set up and managed for them; obviously leading to many disgruntled people and tainted trust in the advisory relationship.
What is my number? Does your adviser tell you how long your money will currently last and under what conditions? Do they paint of picture of different scenarios and how these would impact this projection? Or how you can tweak your planning to achieve your goals?
How much risk am I taking? People often focus and compare the returns they might achieve but neglect to consider the level of risk their adviser is taking with their money. For example, two portfolios can achieve 5% a year return, but fund 1 may be down 50% at any point during the year, and fund 2 just 10% – clearly these two are very different investments, with fund 2 being superior.
Is my fund outperforming a tracker fund? One chooses to invest in a fund if the manager has a proven ability to deliver attractive returns relative to the market, and for this you pay the fund manager a fee, typically around 1% per annum. But are they doing their job and is it worth the cost? A 0.5% reduction in fees may sound trivial, but I recently showed a client they could save in excess of £200,000 in fees over time.

If you would like an independent analysis of your position,
it would be our pleasure to help you.

Moving to Portugal post Brexit | Visa options for UK nationals

By Mark Quinn
This article is published on: 28th March 2022

28.03.22

Whether you are ‘for’ or ‘against’, Brexit has had a wide-ranging impact on our daily lives.

A major consequence has been to the rights of British nationals to move freely around Europe to travel, live and work; especially so for those with holiday homes who now find themselves limited to 90 days in every 180.

To be clear, if you are an EU citizen, you have the right to freedom of movement and can therefore come and go as you please. So, what are the options for those Brits lucky enough to be able to commit to a permanent move to Portugal? You will have to apply for a visa.

Portugal has made it fairly easy to qualify for a visa by offering several options, obviously wanting to continue to attract foreigners to boost investment in the country. The most common are the Golden Visa (residency by investment) and the D7 visa (residency by passive income).

Both visas allow non-EU/EEA or Swiss citizens and their families to live, study and work in Portugal and ultimately apply for permanent residence or Portuguese citizenship. They also allow access to the Portuguese healthcare and education system, as well as free access to the Schengen area, and are a gateway into the advantageous Non-Habitual Residence (NHR) tax scheme.

The key difference between the two programs comes down to one of cost versus flexibility.

Validity
The Golden Visa (GV) is initially valid for 2 years. This can be renewed, and the renewal permits are valid for 3 years. After 5 years, you can apply for permanent residency or citizenship, or you can continue to renew the GV every 3 years. Your family can also obtain permits and the same benefits.

The D7 visa is valid for a stay of 4 months. After this, you apply for a D7 residence permit that will allow a stay of up to 2 years and this can be renewed for a further 3 years. After 5 years you can apply for permanent residence or citizenship. Your family can also obtain permits and the same benefits, assuming minimum criteria are met.

Minimum financial commitment
The GV has one of the lowest ‘residency by investment’ thresholds in Europe. There are many investment options, but the most commonly used is investment in real estate of at least €500,000. Changes at the start of 2022 restricted the location of the property purchase to low-density areas, excluding metropolitan and coastal areas such as Lisbon, Porto and much of the Algarve.

The D7 visa only requires the applicant to prove a minimum level of income equal to the Portuguese minimum wage. This can be in the form of dividends, rent, interest or pensions. If they are also supporting family, an additional 50% for a spouse and 30% for each child is required.

Minimum stay & tax dimension
The GV has a short minimum stay period in Portugal of only 7 days in the first year and 14 days in subsequent years. This is ideal for those who might not wish to trigger tax residency.

The D7 has a minimum stay of 6 months, therefore triggering tax residency.

If tax residency is triggered, you can apply for the NHR scheme which can result in substantial tax savings.

Cost of applications
Excluding 3rd party fees, the GV is approximately €5,900 for the main applicant and €5,400 per additional family member. Renewal is approximately €2,668 per person.

The D7 fees are much lower at approximately €255 per applicant and family member. Renewal is approximately €165 per applicant and family member.

Donwload our guides on moving to Portugal here

Planning for Non-Habitual Residence in Portugal

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

21.03.22

When talking with clients, I break down the planning required into three phases: prior to arrival, during the NHR period, and following the expiry of the NHR status.

The planning required before arriving in Portugal involves:

Utilising any tax breaks and exemptions in your home country. For example, in a UK context, you may wish to close any investments you have that work from a UK perspective but are not efficient in Portugal such as Individual Savings Accounts (ISAs). ISAs are tax free in the UK, but if you wait until you establish residency in Portugal to surrender, you are likely to incur unnecessary taxation
If you are relocating from countries such as the UAE or Singapore, you may wish to consider realising capital gains prior to departure
Considering taking advantage of your Pension Commencement Lump Sum entitlement (25% tax free cash) from pension schemes, as this is lost when you become a Portuguese resident

During the NHR period it is important to:

Maximise pension income opportunities as NHRs benefit from a flat tax rate of 10% as opposed to rates of 20%, 40% and 45% in the UK. There is even the argument that any pension schemes should be fully depleted during the 10 year window, although this does have to be balanced against the inheritance tax efficiency of retaining money within a pension scheme
Plan well in advance of the 10 year period and ideally look to establish structures that can be effective post NHR. If your position does not allow for immediate restructuring and is tax efficient under NHR but not post-NHR e.g. property portfolios, you should start reviewing your position again around years 7-8 of the NHR period to prepare for life after NHR
Review your affairs regularly to take account of personal, family or legislative changes
For those of you taking salaries or a combination of salary and dividends from companies in the UK, you may wish to re-weight the focus to a dividend only strategy

A few caveats for you to consider:

There are subtle nuances to the NHR scheme and international tax rules meaning that in some cases it may be in your best interest not to apply for the NHR regime
For those of you enjoying the 0% tax rate on pension income (which applied to NHRs prior to April 2020), the planning will differ
If you are a non-UK domicile, there are further issues and tax-saving opportunities to consider, and again, delicate planning is required in this area to ensure success

As always please seek advice early and as the only UK Tax Advisers and Chartered Financial Planners in Portugal, we can analyse your situation from both a UK context and Portuguese perspective.

Download our guides here

Investing as a resident of Portugal

By Mark Quinn
This article is published on: 23rd February 2022

23.02.22

If you are relocating to Portugal (or if you are already resident here) it is important to carry out a review of your investments to make sure they will be tax-efficient in your new county of residence.

Just because your investments are tax-efficient in one country does not mean that the tax advantages will transfer to another county. There are various ways of investing as a Portuguese tax resident, including directly held stocks and shares, collective investments, trust and pension structures. One structure that is beneficial to use in Portugal, and which is used widely across Europe as a whole, is the investment bond.

The benefits of investment bonds

There are several benefits to using investment bonds:

Tax deferral during accumulation phase – gains within an investment bond grow free of tax, known as ‘gross roll up’. This means you can benefit from compounding and tax is only payable when withdrawals are made i.e. the gains are realised
Low effective tax rates when withdrawing funds from the policy – Only the growth element of any withdrawal is taxable, and further tax savings are available after 5 and 8 years. It is important to note that this preferential tax treatment is enjoyed if you are a Non-Habitual Resident or a standard Portuguese taxpayer
Control of the timing of tax events – the bondholder can control the timing of any withdrawal which creates the taxable event. This can be done to coincide with low-income periods, for example
Investment flexibility and diversification – as income and gains roll up free of tax within the structure, you are free to pursue any investment strategy without being constrained by the potential tax consequences of re-balancing or switching between strategies. Additionally, these structures can accommodate a wide range of currencies, asset classes and fund management styles, such as discretionary fund management, index trackers and self-management
Simplification of tax reporting – You are only required to report and declare any income and gains when withdrawals are made. This makes local tax reporting very simple
Portability – the investment bond structure is widely recognised in other jurisdictions so you do not necessarily have to surrender your investment if you relocate from Portugal
Succession planning – investment bonds allow flexible and certain transfer of wealth to beneficiaries. This may not be possible with other investment types and the default “forced heirship” provisions under Portuguese law
Inheritance tax savings – with the correct planning, holding wealth in an insurance bond could mitigate or even completely avoid UK inheritance for British domiciles
Estate administration – in the event of death, the proceeds of the structure can be distributed seamlessly to your beneficiaries without the need for any formal probate process

Interested in learning more? Contact me now for a free financial review

At Spectrum, we can help analyse your options and if appropriate for you, advise on how to set up the optimum bond structure for you and your family, including:

How to set up the structure for maximum control and flexibility
Selection of a suitable provider and jurisdiction to hold your investment in, being cognizant of the relevant double tax treaty with Portugal
Which currency to hold the investment in and advise on the underlying fund choice
Consideration of trust options
Regular reviews of the structure and investment strategy on an ongoing basis in light of ongoing changes in taxation and investment markets

You can contact me using the form below to find out more on the services we offer and to arrange a free financial consultation.

*Mark Quinn is a Chartered Financial Planner with the Chartered Insurance Institute and Tax Adviser qualifying with the Association of Tax Technicians.