Moving to Portugal | Visa Options

By Mark Quinn
This article is published on: 19th December 2021

19.12.21

Non-EU citizens, including the British post-Brexit, who wish to permanently settle in Portugal, must apply for a visa for the right to stay. EU citizens on the other hand have the right to freedom of movement and therefore have an automatic right to stay, so do not need to apply for a visa.

There are several visa options available in Portugal and the most common are the Golden Visa and the D7 visa.

Both visas allow access to the Schengen area, ultimate permanent residence or Portuguese citizenship, and a gateway into the Non Habitual Residence (NHR) tax scheme.

The key difference between the two programs comes down to one of cost versus flexibility. The D7 visa is clearly a lower cost route to Portuguese residency, both in terms of the fees and that there is no investment requirement as for the Golden Visa. However, the D7 route does have substantially longer minimum stay requirements.

Tax dimension
Whilst both visa options grant you legal residency in Portugal, one key difference with the D7 is that it automatically triggers tax residence status in Portugal. This may in fact be a positive thing for many people, given the existence of the NHR program which can result in substantial tax savings.

Whichever route you chose, please ensure you are implementing planning both before your move and after you have established Portuguese tax residency, and put in place planning now that will still be effective after the end of the NHR period.

We can analyse your situation and help decide whether tax residency and NHR status in Portugal is obtainable and will benefit you.

With Care You Prosper

By Jozef Spiteri
This article is published on: 16th December 2021

16.12.21

For many, the benefits of financial planning might seem to not go beyond financial stability. Some might think that investing some savings will only result in a more secure financial future, however a recent study carried out by HSBC has shown that financial planning can actually provide additional benefits. They found that people who make use of the services offered by financial advisers tend to benefit from a better mental wellbeing.

Receiving guidance from financial professionals to meet long term goals seems to take a great weight off investors. This is because having to make such plans on their own can often be overwhelming and in the end, not particularly successful. A good adviser is well aware of the importance of a long-term relationship with clients and will have frequent contact. The ability to interact often will help consumers iron out any doubts that come up as time goes by, increasing trust between the adviser and client.

The study carried out by HSBC Life UK found that out of 3000 UK adults, 72% of those who review their financial position at least once a year benefit from average or above average mental health whilst more than 50% of those who don’t do this tend to suffer from below average mental health. Similar numbers were observed for people holding a retirement plan as opposed to others who did not.

This is something we experience first-hand at Spectrum. Clients are at ease knowing that we are there whenever they have a query. They also like to know if they are on track for financial security, particularly when they look ahead into retirement. We can use sophisticated cashflow forecasting tools to clearly illustrate their cashflow well into old age. This is very popular because most clients tend to get lost when they are just seeing numbers in front of their eyes.

Ensuring that our clients have peace of mind is of utmost importance to Spectrum advisers and that is why ongoing service is a key priority. Clients see the value of our active, ongoing service and support; good financial planning extends beyond just the original advice given.

If you would like to discuss the steps you need to take to have a more stable financial situation going forward, feel free to reach out to us. There is no obligation to proceed with anything when meeting us for an initial discussion. We just hope that we can be of service to you.

How do I know if I am Portuguese tax resident?

By Mark Quinn
This article is published on: 8th December 2021

08.12.21

A lot of confusion occurs in this area – people often mistakenly believe they have to be in Portugal for at least 183 days to be considered tax resident here, but that is not strictly the case.

The rules state that you are Portuguese tax resident if:

you spend more than 183 days in Portugal in any 12-month period (these days do not have to be consecutive)
if your habitual/permanent residence is in Portugal i.e. your ‘home’ (there is no minimum day count for this criterion)

Generally a tax payer is Portuguese resident from the ‘first day’ or day of arrival.

If you move to Portugal mid-way through the year, Portugal allows for ‘split-year’ tax treatment. This means that you will only be liable to tax in Portugal from the time you become resident there i.e. the date you permanently move to Portugal up to 31st December. The same principle applies for those who choose to permanently leave Portugal.

This can provide advantageous tax and financial planning opportunities and that is why it is best to seek advice and start planning early. We have separate guides on visas in Portugal and residency that explain the process of becoming resident in more detail.

If you move to Portugal mid-way through the year, Portugal allows for ‘split-year’ tax treatment. This means that you will only be liable to tax in Portugal from the time you are resident there i.e. the date you move permanently move to Portugal up to 31st December. The same principle applies for those who choose to permanently leave Portugal.

This can provide advantageous tax and financial planning opportunities and that is why it is best to seek advice and start planning early.

Download the Guide to Tax in Portugal here

Inflation in Italy

By Gareth Horsfall
This article is published on: 8th December 2021

08.12.21

I don’t think this E-zine can go by without writing about inflation and the impact that Covid has had on the rising cost of goods and services. I don’t know about you but I am starting to see prices rise in Rome, particularly around food. I was shocked to find pears in the supermarket at €5.49kg the other day. Also, when I travelled to the UK at the end of October car hire prices were through the roof, partly fuelled by Brexit I imagine, but crazily expensive. I was also talking to a friend who owns a company making the sun curtains that you see on balconies and terraces in Italian cities. She was telling me that their raw material prices had risen 30% in the last few months. Lastly, there is the impetus of all these housing bonuses at the moment which means that both tradespeople and building materials are in short supply, and when things are in short supply, prices only go one way!

In the US there has been a lot of rhetoric about a ‘transitionary inflation’ which will pass once the world’s supply chain gets back to normal after Covid, when goods and to some degree services as well will start to circulate as they did pre-pandemic. But, I think it is plain for all to see that this is now going to be a bit longer than we first suspected. Even if Omicron turns out to be a much weaker variant and have very little impact on our health, government intervention in trying to stem the infection rate could mean that further travel restrictions are on the cards.

This all has the effect of making it more difficult for raw materials to find their way to factories, production of goods themselves (nothing gets made when people are at home), distribution, administration, shipping etc. The list goes on.

When you bring everything together it means that supply side issues are likely to remain for some time and that has had an effect already.   I was talking to someone at Prudential International last week and they were telling me that their indicators were showing a 6% inflation rate in the UK and 4% in Europe. The general rate in the USA likely to be much higher, into double digits.

This has a serious effect on our savings and for any eagle eyed observer, you may have noticed that your government (Italy or otherwise), even faced with these inflation figures have not started to raise their central bank rates yet. Why?

The answer is very simple. Inflation erodes savings but it also erodes debt and since 2008, what have most governments around the world been creating copious amounts of? ….you got it, debt! So, if they can hold interest rates low for as long as possible, whilst getting a 6% annualised reduction in their debt, then that is good for them. But it is horrendous for savers and people on fixed incomes!  

I always give the example of a table that is worth €1000 today. At a 6% annual inflation rate it will cost €1060 next year. If my savings have been squandering away in a bank account at 0.5% interest, then my €1000 is now worth only €1005. My money is no longer worth what it was last year and my ability to purchase the same amount of goods and services has diminished considerably. Imagine if that were not a table but a prescription drug?

Inflation is a serious issue for many people and there is a simple way to calculate the compounding effect of this over time: The Rule of 72. Simply divide 72 by the rate of inflation and you will find out how many years it will take to halve the value of your savings. At 6%, your €1000 will be worth €500 in just 12 years. Frightening given how quickly inflation can take off and difficult it can be to bring it under control.

Don’t get caught out! Where you can, invest for the long term. I understand it comes with risks, but the long term risk of not having enough money to pay for a retirement, schooling for children, or even healthcare expenses is significantly more problematic.

And on that happy note, I am going to leave you for this E-zine. I am sure that you are all now starting to think about your 2022 tax return and how you can use those €s worth of tax savings! But, before you do that, run out and order your turkey before the prices rise too high.

As always, if you would like to speak to me about any of these issues you can contact me on gareth.horsfall@spectrum-ifa.com or message/phone me on my cell +39 3336492356.

Income Tax Brackets Italy 2022

By Gareth Horsfall
This article is published on: 7th December 2021

07.12.21

Well, it’s the moment that we have all been waiting for. The announcement was made on the 25th November. The new income tax bracket bands (IRPEF) from 2022. Unfortunately, I have to report that they really are not going to make a big difference to most people, but some savings might be available.

I know I mentioned in one of my previous E-zines that there was also talk of a possible allowance being introduced as well, but this area is still being debated. The talk is that an allowance will not be forthcoming for everyone, but that they will merely extend or enlarge the current no-tax area. This is not the same as an allowance which everyone would receive regardless of their income; instead it is offered to those with lower incomes, in different classifications. At present the no-tax areas apply as follows:

For employed workers: €8145pa
Pensioners: €8130pa (this increases for the over 75s to €9000pa)
Self employed workers: €4800pa

** You would not be taxed at all if you were earning / receiving income equating to those figures exactly. However, the more that your total income increases over these figures, the more of the no-tax area that you lose. Hence distinguishing this from a tax allowance. It is more like a means-tested benefit ***

Remember that Italy also has its highly complex system of detractions and deductions which can help to reduce your overall tax bill further. This, with the changes made in the income tax rates, will also be under review, but I suspect it will still remain in some shape or form for the future. The complication here is always knowing what you are eligible to deduct and how. To keep on top of the current system of deductions and detractions, you almost need to make it a full time job, from tax deductions for installing a water filtration system in the house, to veterinary bills and expenses. Anyway, more on that as and when I know more myself.

For now, let’s concentrate on the fact that income tax rates have now been reviewed and subsequently will change for 2022.

Entrepreneurial progress?
I think that back in 2019, maybe earlier, I wrote an E-zine bemoaning the fact that Italy’s tax system was cutting off the opportunity for entrepreneurs and small business owners to go to the next level and start to create the next generation of SMEs (small to medium sized businesses), purely because of its taxation and ‘contributi’ system. My bug bear was that as soon as your income went over €28000 then Italy imposed a taxation of 38% on income earned, until total income exceeded €55000, when the tax rate increased again. This, in addition to the high level of social security contributions, was the equivalent of asking someone to run a marathon but chopping them off at the knees before they started, and as the marathon progressed (if they could even make it that far) then would start to chop more of the leg off as they progressed. Hence, why would you even start?

(I am exaggerating a little because for some years now there has been a tax regime for self employed people earning up to €65000pa where they can pay just 15% income tax per annum, but without the opportunity to offset any business expenses. Most small business people I know are on this regime, which is great, but what if you can, or want to, earn more than €65000pa and take your business to the next level?)

These were always the bigger questions. Well, thankfully, Sig. Draghi has used the cloak of Covid (or more likely the cloak of a serious amount of funding from the EU) to do something about this and has made changes to the income tax rates. However, let’s have a look at the current system of taxation before we look at the new.   IRPEF as things currently stand is charged as follows:

€0 – €15,000	23%
€15001 – €28000	27%
€28001 – €55000	38%
€55001 – €75000	41%
€75000+	43%

The biggest leap here being the move from 27% to 38% after €28000pa   In the shake up, we now go from 5 bands to 4 and the bands have been widened as follows:

€0 – €15000	remains at 23%
€15001 – €28000	will now go from 27% to 25%
€28000 – €55000	will fall from 38% to 35%

And the biggest change here is that from €55000 pa the rate will pass straight to 43%

What can be learnt from this?
I think the lesson from this change is very simple. One which I think fits into current world thinking. The individual earning more (in this case €55000pa) is now going to pay more tax and those on lower than €55000pa incomes, in Italy, are going to be incentivised to spend more with lower taxes. It’s not a stupid strategy in all honestly because people with less income will naturally spend the extra cash that is available to them. Those with higher incomes will normally siphon off surplus income into reserves (investments/pensions etc).
So, all in all Italy is doing what a lot of countries already do. And we are told that this is just ‘stage 1’ of the reformed income tax regime (essentially to get something over the line before the end of 2021), but more reforms are pending from 2022 onwards. As my classic phrase goes ‘I wait to be amazed!’.

  Summary
That all being said, for a lot of people it will mean some tax savings, especially those with income between €15000 and €55000. The full saving in these tax brackets will be €1070pa. Not to be sniffed at as the cost of utilities and food has increased substantially in the last year. For anyone else, you are not really going to see much change at all, and I suspect the system of detractions and deductions will continue for now to help anyone reduce their income tax liabilities even further. In Italy, it would seem, things happen piece meal and over a longish period of time. No one politician or political party really has the political clout to push such sweeping reforms as might be needed and get them put into place, even Mario Draghi. However, the ability to push through smaller reforms which make a big difference over time seems to be more the status quo. As usual, we bumble along and react to things as they happen and continue to enjoy the life that Italy affords us.

Download your tax guide to Italy

Transferring Irish Pensions Abroad

By Craig Welsh
This article is published on: 7th December 2021

07.12.21

Irish expatriates, or indeed anyone who has previously worked in Ireland, may have accumulated Irish pensions along the way. If it’s unlikely that you will return to the Emerald Isle, it may be worthwhile looking into moving these pension pots.

At Spectrum, we can help you with that.

First, there must be a bona fide reason for wishing to transfer those pensions away from Ireland. It cannot be done just to circumvent Irish taxation. Professional advice from a regulated adviser should be sought.

You may be able to transfer your Irish pension to either a Malta QROPS (Qualifying Recognised Overseas Pension) or a UK SIPP (Self Invested Personal Pension). And no, you don’t have to be living in either Malta or the UK to do so. Moving them can give you far more flexibility by allowing ‘income drawdown’ and avoiding the need to buy an annuity.

Maybe you have more than one pension scheme in Ireland? In that case, you might benefit from consolidating them into one pot. Again, that makes things a bit easier to manage; we can then help you manage the investment side too.

So, a bit more detail;

Drawdown option; no need to buy an annuity. Withdrawing money from an Irish pension can be complex and inflexible, with some pretty complicated rules. For instance, you will find it difficult to access an Approved Retirement Fund (ARF) or an Approved Minimum Retirement Fund (AMRF) if you are non-resident in Ireland. And without an ARF / AMRF you will most likely have to buy an annuity, with no ‘drawdown’ option. Transferring out means you can access lump sum and drawdown options with no requirement to buy an annuity
Pension benefits can be accessible from age 50 upon a transfer, and a lump sum of 30% could be taken. How the lump is assessed for taxation depends on where you are resident, so again, advice is essential
Easier to manage when you live abroad. UK SIPPs and Maltese pensions are a bit easier for ‘expats’ to manage. In Ireland you must firstly transfer €63,500 to an AMRF/Annuity, unless you are receiving €12,700 p.a. in lifetime guaranteed pension annuity. On the other hand, UK and Maltese products have no annuity requirements
No Irish taxation. Even if you live abroad, income from your Irish pensions will be taxed at source, as income in Ireland. Withdrawing from a UK SIPP or a Malta QROPS instead means that this income can be paid gross, with no tax at source. This depends on where you are resident however and if a double taxation agreement (DTA) is in place. Again, professional advice should be sought
Death benefits. Irish pensions, once in payment, are liable to Irish inheritance taxes (CAT) on death, even if you are no longer resident there. With a Malta QROPS there is no Maltese inheritance tax on the remaining pension pot, although tax may be payable in the country of residence of the deceased or beneficiaries

Basically, transferring out could make your life easier. Each situation is different however, and a full review of your circumstances should be carried out.

If you do have an Irish pension and do not intend to return, please feel free to contact us at Spectrum for a no-obligation, initial discussion where we can explore your options.

I’m an Expat in Portugal – where do I pay tax?

By Mark Quinn
This article is published on: 6th December 2021

06.12.21

Many clients I have helped have been paying tax in the wrong country, often because of incorrect advice received in the past, or just because they were not aware of the rules.

It is critical to establish your tax residency position to avoid complications and possible penalties in future. I discuss these issues in this post and my next post later this week, with the latter focusing specifically on Portuguese tax residency.

If you are a Portuguese tax resident you are required to declare, and pay tax on, your worldwide income and gains in Portugal. If you are non-resident, then you are only liable to pay tax in Portugal on Portuguese source income.

If you have assets and/or income in more than one country, you will always have a “controlling tax authority” (CTA). This is not based on where most of your assets are located, where income is earned, ‘where you have always paid tax’ or where you ‘choose to declare tax’. Your CTA is normally the jurisdiction where you spend most time in that given tax year i.e. where you are tax resident.

Having said this, you may have to pay tax in more than one country. For example, if you are permanently living in Portugal and you have rental income generated in the UK, you will have to pay tax on that rental income in the UK first. However, as Portugal is your country of tax residence, you will also have to report the income in Portugal and potentially pay tax. Similarly, if you own and run a UK business, you may have to declare and pay tax and social security in Portugal instead of the UK if you are resident in Portugal.

Paying tax in the wrong country may not only result in heavy penalties but could also mean that you are paying more tax than you should and may affect any state pension, healthcare or social security rights you have.

There are rules in place between most countries to avoid tax being paid twice (double taxation agreements) but generally the highest rate of tax will always remain payable.

Pension scams – what you need to know

By Chris Burke
This article is published on: 2nd December 2021

02.12.21

The pension scams in Spain – What they are, how they work and how to avoid them

Pension scams have cost UK expats residing in Spain millions of pounds over the last few years. The reality is that anyone can fall foul to a pension scam, irrespective of how financially savvy they think they are. The fraudsters often seem very professional and trustworthy and promise guaranteed lucrative returns, but in reality, the victims are usually left with nothing.

How do pension scams work?
Fraudsters normally contact the individual by phone, text or email. They may claim to be a fictitious company or they may even falsify their identity, for example claiming to be from HMRC (HM Revenue and Customs) or the FCA (Financial Conduct Authority). After establishing a rapport with the individual, the scammer will then try to persuade the victim to part with their pension. There are multiple different strategies for this, but each strategy effectively entails persuading the victim to transfer all or a large part of their pension to the fraudster.

The pension may be stolen outright, or it may be invested into rare, high-risk investments such as overseas bonds, infrastructure or obscure technologies. The scammer may also promise early access to the pension through various ‘loopholes’ or by offering loans to be paid back upon receipt of the pension. In this scenario, alongside potentially losing their entire pension, if they transfer it out early the victim may also face a large tax bill from HMRC. If HMRC class the early pension withdrawal as ‘unauthorised’, the tax bill can mount up to a maximum of 55%!

Only in very specific circumstances are you able to withdraw your pension early. If you are contacted by someone trying to persuade you to do this, it is likely to be a scam.

How to avoid pension scams? Top 5 Tips

1.Research the individual/company – are they genuine?
Research the individual and the company that they work for on the internet. Depending on how they contacted you, perform a search on their phone number, email address or even their LinkedIn profile. Next, look for news articles and/or reviews on the company, ideally from an independent source (companies in the past have falsified reviews or even paid news outlets to publish positive publicity).

2. Contact a government regulated body for guidance
After conducting your own research online, why not contact an official government regulated body for additional verification? Companies such as Pension Wise, the Pensions Advisory Service or the Money Advice Service may be able to assist and ensure that the proposition is legitimate.

3. ‘If it sounds too good to be true, it probably is’
Have you been promised guaranteed returns at an exceptionally high rate? If the proposal sounds too good to be true, it probably is. Furthermore, high rates of returns often also result in high levels of risk.

4. Offers of early pension access – thoroughly research
As mentioned above, this is a very common pension scam. In only very rare case scenarios are you able to access your pension under the age of 55, so if this has been offered to you please conduct thorough due diligence. It may furthermore result in a tax bill of up to 55%.

5. Investing in an unusual asset class – be vigilant of scams
Be mindful of proposals to invest in strange and obscure assets. The assets which you invest in should all have easily accessible information available on them. For example, the funds that you invest in should all have factsheets available online (on Trustnet for example) and the shares you invest in should all be listed on a reputable exchange.

Pension advice, either managing or planning, is very important and that advice can greatly improve the amount you receive in retirement, or for your loved ones after death. What it will also give you is peace of mind that your pension money is safe and not falling foul of any risks/scams, and that you are being given ongoing, good advice.

Book a telephone call or zoom chat with Chris now

If you would like to find out more about pensions and investments here in Spain or to talk through your situation and receive expert, factual advice, don’t hesitate to get in touch with Chris on the form below.

Bad experiences with financial advice

By Jozef Spiteri
This article is published on: 1st December 2021

01.12.21

Within any sort of market, people have different experiences which contribute greatly towards how that person feels about that specific market, or a vendor within that market. One might think that the feelings and emotions which a person experiences in everyday markets might not apply to the financial markets. However, opinions about financial services and products can be formed in a similar manner to any other common market.

I can explain this quickly using the fruit analogy, a market which most people can relate to. In this market, consumers can choose from a number of different vendors, selling similar products. Even though products might seem to be pretty much the same, individuals still tend to have their preferred fruit sources. How can this be? Well, preferences are formed through experiences and opinions of people surrounding that individual. If you have a negative experience purchasing fruit from a particular vendor, you will probably avoid going back to that seller and look to take your business elsewhere. Similarly, you might avoid purchasing fruit from a store if you hear negative feedback from someone else. This human behaviour is very similar to what goes on in the financial market.

Financial services is home to many financial advisers offering a vast range of products, and, unfortunately, some customers might not get the satisfaction they would have expected prior to investing their money. This can either be poor investment performance, or irregular service from the adviser. For example, the original adviser may have left the firm and the ongoing service is unsatisfactory.

Fortunately, just like in the fruit example discussed earlier, investors are actually able to move their business from one adviser to another if they are not satisfied.

Some clients may not be aware that they have this option. Often, people keep the original investment in the hope that performance improves. Whilst some patience is recommended when taking a long-term view, regular contact and discussion with the adviser is essential. Clients should do some research and be prepared to look for an adviser who will listen to their needs and offer the level of ongoing service they require.

This is something which the Spectrum IFA Group understands. The group has a dedicated fund research team who use a strict research process before recommending suitable investments for clients. Criteria includes, among others, performance, regulation and liquidity, ensuring clients are as protected as possible. Clients also receive regular updates and reviews of their financial goals.

As regulation continues to evolve, advisers must keep up with rapid change. Brexit has also had a big impact for expats in Europe who were still using British advisers who no longer have the necessary licence to advise these clients.

Spectrum advisers are all living in the region in which they are advising, allowing advisers to have a much better understanding when dealing with clients either living there, or who are looking to move to that part of the world.

If you are looking for a fresh look at your financial planning, with a regulated adviser who can offer the level of service you deserve, please feel free to contact us, no obligation upon initial discussions.

Inflation: food for thought

By David Hattersley
This article is published on: 30th November 2021

Governments use a variety of measures to calculate inflation figures, but in the main consider about 600 items that are in popular demand. Hand sanitizer has recently been added to the list as an essential item. But, it will also include TVs, clothing, smart phones, new gadgets etc. If one strips out something that is considered by some as non essential or has no need to be replaced, then within an individual’s budget the cost of food will take on greater significance.

Within the food chain costs are going up. Farming and breeding have been badly hit by increased production costs; electricity has gone up by 270%, tractor diesel 73%, fertilizer 48%, water by 33% and seeds by 20%. Growers have to pay more just to cultivate and pick their crops. In Galicia dairy farmers who produce 40% of Spain’s milk are being “strangled” by soaring production costs, estimated at 25% by the Union of Agrarians. Bad weather, such as the recent “Gota Fria”, can also have a negative impact on crops. The complaint from farmers is that whilst supermarket customers are paying more for their milk, the Food Chain Law has not been applied, i.e. “no link in the chain may charge less than what it costs to produce.”

Distribution is also part of the food chain. The majority of Spanish truckers are self employed, but have been unable to offset their increased costs of diesel plus the future cost of automated motorway toll roads. A three day strike has been called for 20th-22nd December.

So perhaps a perfect storm of reduced supply and increased demand will, if you excuse the pun, “add fuel” to the inflationary upward spiral. This is perhaps lessened in Spain, as it is relatively self sufficient in relation to food supply and is a major exporter. It is worse for countries that are not self sufficient and need to rely on Spain’s exports and alternative supplies from across the globe.

To many of my retired clients who remember the UK in the 80’s, inflation has again become a concern. I have been able to help them find some financial protection against this for their savings, in particular those that held surplus cash in banks in excess of an emergency fund. Each client had their own attitude to risk which does vary, hence the need for regular reviews. I have access to Spectrum’s preferred investment partners who can provide a multi asset and globally diversified tailored solution.

We do not charge fees for reviews, reports, recommendations or future service meetings. Should you wish to contact me to explore your needs further, please feel free to do so either via the web site or directly using the contact details below.