Even if you are a Non Habitual Resident (NHR) with preferential tax status, UK and Portuguese property will remain taxable on both income and capital gains. However, there are certain planning opportunities you can tax advantage of in Portugal and the UK.

UK property planning
When selling UK property, you can deduct expenses associated with buying and selling the property, including professional fees and fees incurred on the transfer of property, such as stamp duty. You can also add any expenses incurred in enhancing the property to your base cost.

If the property has ever been your principal private residence (PPR) you can reduce or even eliminate the capital gains tax with main residence relief. This ensures that any period during which the property was your PPR is exempt from tax. For example, if you lived in the property for 5 years out of a total ownership period of 10, then only 50% of any gain would be subject to tax.

The property is also considered your PPR for 9 months after leaving the property so you can increase your tax-free ownership period.

UK allowances available
Even if you have left the UK, as a UK/EEA national you can retain your annual capital gains tax (CGT) allowance to offset any taxable gain, although this is reducing – the current allowance is £6k but falling to £3k from the 2024/25 tax year. If you hold property jointly with your spouse/civil partner, you can combine your CGT allowances (and income tax allowances if letting).

Timing is important
If possible, selling when you have not sold other assets will ensure your full CGT allowance can be set against the property gain.

If you are still UK tax resident you can also:

• time the sale when your income level is low, as your overall income level determines which CGT band will apply (18% for basic rate tax payers and 28% for higher and additional rate), and/or
• higher rate tax payers can potentially lower their tax bands via a pension contribution or donation to charity.

Non-Resident Capital Gains Tax (NRCGT)
If you are a Portuguese tax resident, you are able to benefit from NRCGT which is a UK tax concession which states that only the increase in value of property after April 2015 is taxable e.g. if you purchased a property in 2000, any increase in value between 2000 and 2015 is not taxed. This can substantially reduce your tax bill and wash out gains, and as stated earlier, you can still retain your annual CGT allowance.

If you also qualify for NHR there would be no tax in Portugal, which under normal circumstances would otherwise be taxed at progressive rates.

A further planning angle for those with NHR is that, if properties are held within a company, any dividend taken would be free of tax.

You may find the HMRC link useful when calculating your likely liability https://www.gov.uk/tax-sell-property/work-out-your-gain

Portugal property planning
Properties purchased after January 1989 are subject to capital gains tax on 50% of the gain. Property purchased before this date is not subject to CGT. Do note, NHR does not have any effect on the taxation of Portuguese property.

Some expenses are deductible, such as the buying and selling costs. In addition, inflation relief is available in Portugal if the property is held for more than two years.

It is possible to mitigate or even eliminate the taxable gain on a Portuguese main home by:

• Reinvesting in another property within the EU;
• Reinvesting in an approved investment structure; or
• A combination of the two e.g. if you sell a property for €1m, you can downsize into a smaller property for €500k and put the balance of €500k into an approved investment structure. This investment structure can then provide a tax-efficient income for life.

The amount that must be reinvested is the net sale proceeds, not just the gain. Any amount not reinvested is taxable under the normal rules.

There are nuances around these rules so please always seek professional advice. There are also complicated scenarios when selling property held by companies and specialist advice and calculations are required.

With rising interest rates, we have seen banks offering interest rates in excess of 4% or even higher with 1-year fixed terms. This coupled with the perceived risk of investment markets and the constant stream of negative news has left many wondering whether staying in cash is best.

Short term goals
Cash certainly has a place as an emergency “buffer” to allow for life’s unexpected events, and it is also sound financial planning to set aside sufficient for your short-term needs. Likewise, holding cash as part of an investment portfolio is important and it can help reduce the effects of volatility often seen in markets.

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

Even with rising interest rates, the returns from cash are still negative when you consider that inflation currently sits at 7.9% in the UK, so investors are not getting any real returns. As an example, the negative effect of a modest 2% inflation on £100,000 over 10 years is £82,035 and £67,297 over 20 years.

However in the longer term, interest rate cuts are likely as the Bank of England is starkly aware that keeping interest rates high risks triggering a recession and destabilising the UK housing market. Central banks globally are also now close to pausing and then reversing recent rate hikes.

Protect yourself against inflation
Investing in high-quality company shares has been shown to offer inflation protection. Looking at long-term figures, Credit Suisse show that over a 123-year period starting in 1900, shares in developed equity markets have generated returns of 5.1% above inflation and emerging equity markets have achieved 3.8% over inflation.

The Credit Suisse figures also show that shares have outperformed cash (and bonds) in every one of the 21 countries its data covers over that 123-year period. This is quite remarkable given this period covers two world wars, two global pandemics, the great depression, the 2000 dot-com bubble, and the 2008 global financial crisis.

Opportunities elsewhere
Falling interest rates will provide opportunities elsewhere. For example, bond prices move in the opposite direction to interest rates so a future fall in interest rates is likely to result in capital gains on bonds, or holding shares allows investors to not only benefit from the increase in share price over time but income from dividends too.

If we look at the top 100 shares in the UK, analysts are expecting a dividend yield of 4.1% this year and 4.4% in 2024 and with the possibility for share buybacks added into the mix, this could be as high as 6% for 2023.

Tax considerations
Always consider the net interest rate you will earn. For example, a relatively attractive rate of 5% becomes a somewhat mediocre return of just 3.6% for a standard Portuguese tax resident who must pay 28% tax.

Also be cognisant that some of the more attractive rates being offered by banks in Guernsey and Jersey will have a higher tax rate applied of 35%, even if you are a Non-Habitual Resident.

The solution – balance
We believe a balanced approach of cash and investments makes most sense. The split however really comes down to your short- and long-term goals.

In short, cash is still king for short-term needs but for meeting longer-term income and growth objectives, stack the odds in your favour by using a sensible and well-diversified portfolio of shares, bonds and property. Coupling this with effective tax planning can lead to even more savings.

Lastly, Warren Buffet’s advice as one of the world’s most successful investors is, “The one thing I will tell you is that the worst investment you can have is cash. Cash is going to become worthless over time but good businesses are going to be worth more over time”.