Many British people on holiday in the Algarve fall in love with the local lifestyle and start making plans to move here. Or perhaps you are at the final stages of your move, or have recently arrived in your new country. There are many important financial considerations to plan for, and the sooner the better.
1. Tax residency and obligations
First and foremost, you need to establish if and when you become resident in Portugal for tax purposes. There is a list of criteria that make you tax resident. If you meet any of them you are liable for tax here on your worldwide income and gains. You need to register for tax and submit annual tax returns.
You need to understand the new UK tax residence rules too, since it can be harder than you think to lose UK tax residency.
There is also the issue of where to pay tax if you live in one country and have income generated in the other (eg. rental income). Where necessary, the UK/Portugal double tax treaty determines where you pay tax.
2. Tax planning
Taxation on general and investment income is higher than it used to be, but do not let this put you off. You can often structure your savings, investments and pensions to be tax efficient. Seek specialist advice on what arrangements are effective and compliant in Portugal.
Do not presume that what was tax efficient in the UK is tax efficient here. You will probably need to replace existing arrangements with ones designed for Portuguese residents. You may require a solution that takes both tax regimes into account.
If you are not yet resident, enquire about Portugal’s Non Habitual Residents scheme. This was established to attract wealthy people to move here and can offer some very attractive tax advantages.
Many expatriates keep their savings and investments in Sterling. This puts your income at the mercy of exchange rate fluctuations, which can have a significant impact on your income.
A good rule of thumb is to match your assets to your liabilities, so if you are spending Euros, your assets are in Euros. However you may have other considerations. Perhaps you will return to the UK one day, or will leave an inheritance to UK resident children, or do not have confidence in the Euro.
It is often good to have some diversification in currencies. Choose flexible arrangements which allow you to change currency if necessary.
Retired people rely on their pension funds to provide much, if not all, of their monthly income. There may be ways to improve your private pension funds to make them work better for a UK national living in Portugal.
5. Inflation and your long-term security
Do not underestimate the risk of inflation. It will reduce the spending power of your savings over your retirement years. It is important to take steps now to protect your wealth in real terms, so that you maintain your standard of living right through retirement. With life expectancy increasing, this may be longer than you expect. Allow for extra expenses along the way, such as healthcare issues, home renovations, new hobbies etc.
6. Investment strategy
The first rule of any investment strategy is that it should be specifically designed around your circumstances and short and long-term objectives. Your circumstances drastically change with retirement and a move to a new country, so your strategy needs to be professionally reviewed and adjusted to suit your new life and goals.
7. Estate planning
This is a major issue when you move to a new country, as it may have different laws regarding succession and tax. We are lucky in Portugal because inheritance tax here (“stamp duty”) only applies to assets situated in Portugal; the rate is relatively low and your spouse and children are exempt.
Unfortunately British expatriates do not escape death taxes because if you remain UK domiciled, as many do, you continue to be liable for UK inheritance tax. Seek specialist advice on how to mitigate or avoid this tax.
You need to understand how probate works in Portugal, and anywhere else you have assets, and find out if there are steps you can take to avoid probate for your heirs.
While you can do a lot of research online these days, taking advice from a professional tax planning and wealth management expert is invaluable. It is the only way you can be sure that you have not overlooked anything, and that you have established what all your options are and how suitable they are for you.
Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
To keep in touch with the latest developments in the offshore world, check out the latest news on our website www.blevinsfranks.com
Written by Gavin Scott, Senior Partner, Blevins Franks