Making the move to Portugal can be an exciting journey, but have you thought about the best way to fund your new life and make your money last?

If you are considering the best ways of investing your personal funds or pension investments, here are some planning tips to ensure you do not run out of money.

Pre-relocation advice

If you have not already made the move to Portugal, then taking advice early gives you the opportunity to take advantage of the pre-planning opportunities in your current country of residence and post-move planning you can enjoy when you become a Portuguese tax resident. This can put you in a much more favourable financial position and avoid any unexpected taxes.

Time horizon/life expectancy

The first step is to have a good awareness of your likely investment time horizon – we find that clients generally have a pessimistic view, thinking in years rather than the more likely scenario of decades.

According to the UK’s Office for National Statistics a female aged 65 now has an average life expectancy of 88 and a 25% chance of living to 94 years old. A time horizon of over two decades leads to a completely different investment strategy than a portfolio that exists for only several years.

Understand the true nature of risk

Risk is a subjective issue and there are many definitions of what risk actually is. The confusion surrounding risk tends to stem from a misunderstanding between risk and volatility. One view is that risk is permanent loss of capital, whereas volatility is the degree to which values move up and down.

As a rule, we find that most consider shares as “risky” and cash in the bank as “safe”. But if we define risk as the probability of permanent capital loss, would these definitions hold up?

We know that cash in the bank is likely to reduce in real terms because of inflation i.e. you will lose money over time, whereas investment in high quality company shares have demonstrated that, over the medium to long term, they protect you from inflation. In that case, would shares not be defined as lower risk and cash as higher risk?

Sensible income levels

What is considered “sensible” is based on two factors: 1. likely investment returns based on your risk tolerance and 2. your objectives for the funds as a whole and whether you are comfortable gradually “eating into” your original investment capital.

As an example, if you invest €1m and are achieving a return of 5% and taking €50,000 (5%) income, then your original investment amount will remain constant.

Some clients may worry about depleting their original investment but this isn’t necessarily a bad thing if it is done in a controlled way. Continuing our example above, assuming the same investment growth rate of 5% but you want to take €70,000 (7%) income each year, then your capital will decrease by 2% each year – although your original investment is reducing, it is very controlled and a 2% each year reduction will still provide you with 50 years of funds.

Right investment split

Based on the above, if cash isn’t an appropriate long-term investment, how do you put together an investment portfolio that protects you over the longer term?

This comes down to investing in the right mix of shares, bonds, cash, property and commodities etc. and the different blend of these investments will be determined by your situation and objectives; it is personal to each individual and family.

Use “lifestyling” with caution

In the context of choosing the right investment mix, be aware of the concept of lifestyling. This is an automated switch process that is designed to move clients out of what are considered more risky assets into lower risk assets as retirement or an income date approaches.

This process is flawed on two levels. Firstly, as explored above, there is a question mark over what is considered risky and secondly, the time frame over which the investment is active. Many may find their whole portfolio has been moved into bonds/cash when they may have another two or three decades for the funds to last.

Right geography

Many investors will retain a portfolio based on their home country e.g. those from the UK will retain a UK based portfolio which will tend to be biased to UK based shares and bonds.

This may not be the best approach going forward based on two issues, 1. the policy will invariably be sterling denominated leading to unnecessary currency conversions and exchange rate risk based on the sterling/euro rate and 2. the UK market has historically lagged other international markets resulting in underperformance for investors – to illustrate this, over the last 10 years, the UK market has grown by 98.68% whereas the world index has grown by 176.21% and the US market by a staggering 258.18%.

Right tax

Minimising the tax “drag” on investment returns plays a huge role in your overall financial success.

A large part of controlling tax is how you structure your investment and pensions at outset. You are able to invest directly or through the use of structures such as pensions, companies, trusts and bonds. The most appropriate structure will vary according to each family’s position and objectives.

Right fees

The level of fees paid for advice, investment and pensions structures can also have a dramatic effect on your long-term position. Ensure you have a clear understanding of fees and that they are explicitly stated.

Right advice

DIY in financial terms can be disastrous, especially when considering the complexity of cross border tax, investment, pension and currency issues. Take advice from the right people: ensure you are seeking Chartered level advice from a well-regulated and established firm.

With over 35 years’ experience, Debrah Broadfield and Mark Quinn are Tax Advisers and Chartered Financial Planners specialising in cross-border advice for expatriates. Contact us at: +351 289 355 316 or portugal@spectrum-ifa.com.

Minimising the cost of departure

As more UK residents explore the prospect of relocating abroad, particularly to attractive European destinations such as Portugal, there is increasing awareness of the financial implications of expatriation.

While the UK does not impose a formal “exit tax” on individuals leaving or moving assets out (pensions being an exception), there are costs on departure  in the form of the loss of certain reliefs and exemptions. Understanding these nuances and early planning is critical to minimise any costs and maximise the planning opportunities.

This article focuses on British individuals relocating to Portugal under its standard tax residency rules as the new tax incentive IFICI regime offers separate incentives and planning complexities.

So what do you need to be aware of when leaving the UK?

Key reliefs and allowances lost on departure

Private Residence Relief (PRR)
UK residents can generally sell their main home without incurring capital gains tax due to PRR. However, once tax residency shifts to Portugal, this exemption no longer applies.

Portugal taxes gains on property sales regardless of whether the property is a main residence. Therefore, the timing of property disposals becomes crucial and could have a significant tax impact.

Business Asset Disposal Relief (BADR)
Formerly known as Entrepreneurs’ Relief, BADR allows UK residents to sell qualifying business assets at a reduced capital gains tax rate of 14%. However, this relief is not available once you become tax resident in Portugal as it is residence of the shareholder that determines the tax treatment, not the location of the business.

Under the UK-Portugal double taxation treaty, Portugal has taxing rights over such gains, where the rates start at 28%. Nevertheless, with appropriate structuring, these gains can be reduced—and in certain cases, eliminated entirely.

Pension Commencement Lump Sum
The so-called “25% tax-free cash” is a UK tax incentive and other countries, including Portugal, do not recognise the concept of this allowance. As a result, any amount withdrawn would be taxed as income in Portugal.

As a result of the erosion of the tax benefits of pensions, more and more are looking to deplete their pension schemes, particularly if they hold Non-Habitual Resident status in Portugal.

Overseas Pension Transfer Charge
This point is slightly different to the others discussed above, as it doesn’t apply when the individual leaves the UK, rather it is when the pension scheme leaves the UK.

Since October 2024, transferring a UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) may incur a 25% tax charge.

Whilst this will stop the majority of pension transfers taking place, some have decided to accept the 25% exit tax charge in order to save their beneficiaries from the 40% IHT charge to be implemented from April 2027, as discussed above.

Pension Contributions After Departure
UK tax relief on pension contributions is only available to UK residents. However, former residents may contribute up to £3,600 gross annually for up to five tax years post-departure.

EIS and SEIS Reliefs
Tax advantages associated with the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS) are similarly lost upon changing tax residence. Furthermore, if an EIS/SEIS holder ceases UK residency within the three-year qualifying period, gains previously deferred may trigger an immediate tax liability.

The Prospect of a UK Wealth Tax
Recent discussions have reignited debate over the potential introduction of a wealth tax in the UK. While no formal proposals have been tabled, policymakers and think tanks are increasingly considering wealth taxation as a mechanism to address fiscal imbalances and fund public services.

Should such a tax be introduced, it could significantly alter the financial planning calculus for high-net-worth individuals contemplating emigration. Although the UK has historically avoided a net wealth tax, a shift in political direction could see assets—particularly those held in the UK—subject to new assessments.
This development, coupled with changes to inheritance tax and pension treatment, is leading many to explore pre-emptive planning, including asset restructuring, offshore trusts, and in some cases, accelerated departures. For those considering relocation to jurisdictions like Portugal, which offers comparatively benign treatment of foreign income and gains, the window to act may narrow.

Final thoughts

In the current environment, tax-efficient emigration from the UK is not as simple as buying a one-way ticket. The erosion of traditional tax reliefs, the complexity of cross-border rules, and the looming spectre of wealth taxation, demand early and strategic planning. Whether mitigating capital gains, managing pensions, or avoiding permanent establishment risks, proactive advice is essential.

As always, individuals should seek bespoke advice based on their circumstances and monitor regulatory developments closely—both in the UK and Portugal.