by Namrata Majithia 5th October 2020
Moving to Portugal tax-efficiently – have you thought it through?

There’s no doubt that Portugal is a fantastic place to call home, but did you know it can also offer financial advantages?

With early, careful financial planning, you can make the most of tax-efficient opportunities and avoid potential mistakes.

Locking in a lifetime of benefits

Here’s food for thought if you have a holiday home or enjoy spending time in Portugal – from January 2021, it is likely that non-resident UK nationals will only be allowed to stay up to 90 days in a 180-day period in Portugal without a permit or visa.

For UK nationals who want unlimited access to the country, it is therefore crucial to register for Portuguese residence before the Brexit transition period ends on 31 December 2020.

Becoming resident this year will not only secure your right to remain, it will guarantee citizens’ rights, including access to healthcare and pension benefits, for as long as you live here.

It usually takes 183 days spent in Portugal to be recognised as a tax resident, but this can be earlier if you have a permanent Portuguese home. Once resident, your worldwide income and certain gains become liable for Portuguese taxation, so make sure you are prepared.

NHR: A decade of tax breaks awaits

The good news is that Portugal offers generous tax benefits to new residents for their first ten years here through the ‘non-habitual residence’ (NHR) scheme.

Under NHR, those employed in Portugal in a ‘high value-added’ profession pay a flat 20% income tax rate, rather than the usual rates up to 48%. NHR can benefit retirees too, as foreign pension income is taxed at just 10%.

Not only that, non-habitual residents can receive most foreign income tax-free in Portugal.

You could qualify for NHR if you have not been Portuguese resident within the last five years, so aim to apply once you move.

Minimising your tax bill in Portugal

Even outside of NHR, Portugal can be a tax-efficient home, including the potential to enjoy extremely favourable tax treatment on investments.

However, don’t assume what was tax-efficient back home is the same in Portugal. UK ISAs, for example, are taxable in Portugal. Your circumstances and goals will change when you relocate too, so you need to take a fresh look at your financial planning to make sure everything is set up in the best way for your new life.

Remember too, that once you are living in Portugal and spending euros daily, keeping savings in sterling makes your income vulnerable to exchange rate fluctuations. Ideally you should hold some assets in euros to limit risk or consider arrangements with currency flexibility.

For the best results, talk to an adviser with in-depth knowledge of the Portuguese tax system to explore how you can take advantage of available opportunities.

A financially secure retirement in Portugal

If you are planning to retire while in Portugal, be sure to review your pension options. Many British expatriates benefit from transferring UK pensions into a Qualifying Recognised Overseas Pension Scheme (QROPS), or by reinvesting a lump sum in tax-efficient arrangements for Portugal. However, there is no one-size-fits-all solution, so regulated pensions advice is essential to protect your retirement savings.

Note that pension options may change for UK expatriates – including a potential 25% on QROPS transfers – after the Brexit deadline in December 2020, so explore your options sooner rather than later.

Want to know more?

Unsurprisingly, cross-border tax and financial planning is complicated, so take personalised, professional guidance for the best results.

Chamber members Blevins Franks has decades of experience providing specialist tax, pensions, estate planning and investment advice to British families in Portugal. Their local advisers are ready to help you secure the financial peace of mind to relax and fully enjoy your new life in Portugal.