Each person should seek individual advice when it comes to financial planning but here, we touch on some commonly held UK assets and the main points that you should be aware of.
Can I keep my UK bank account and ISA?
By Spectrum IFA
This article is published on: 17th January 2023
Post-Brexit many UK banks have ceased services to non-UK residents forcing clients to seek out Sterling-based accounts elsewhere. The Channel Islands and Isle of Man are popular alternatives to the UK when it comes to banking, but these are considered ‘blacklisted jurisdictions’ by Portugal and interest is punitively taxed at 35%, rather than the usual 28% or 0% under NHR (Non-Habitual Residence).
ISAs do not retain the same tax exemptions when held by Portuguese residents and are treated in the same manner as standard investment portfolios. For NHRs, generally, interest and dividends are tax-exempt and realised gains are taxed at 28%, but if your ISA holds funds, based on the strict reading of the tax law, returns are classed as ‘other income’ and taxed at 28%. For non-NHRs, interest, dividends and gains are taxed at 28%.
Whether you retain or restructure your UK ISA will depend on your longer-term plans.
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.
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.
A planning point you should consider is to ‘rebase’ your ISA prior to leaving the UK to ‘wash out’ any taxable gains accrued to the point of your departure. This way, if you decided to restructure, encash, or withdraw from the ISA as a Portuguese tax resident later, the capital gains tax liability should be much lower.
Investments with UK-based Advisers
Brexit brought an end to the passporting rights that allowed UK-based advisers to advise clients across the EU and vice versa. This means that many advisory firms may not have the right permissions to continue providing advice to clients living overseas. This can be worrying for those who have worked alongside their trusted adviser for many years and understandably, many UK advisers do not want to lose their clients. But good financial planning and structures for UK residents are unlikely to be effective for those living outside of the UK.
Whilst you can continue your relationship with your UK adviser and pay their fees, without the right permissions they cannot service your accounts e.g. provide investment advice for portfolio rebalancing/fund switches, and more importantly, you might not have proper recourse if anything were to go wrong. This could not only affect your investment performance, but you will end up paying for advice that you cannot (legally) take advantage of.
Lastly, there are practical implications. Does your UK adviser understand the rules in your new country of residence? We have seen many individuals miss out on substantial tax-saving opportunities because UK advisers were not aware of the local tax rules in Portugal or the implications of the planning in place.
With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.