Despite Brexit, Portugal’s still a great option for Brits looking to relocate. It boasts a stunning climate, low cost of living, friendly locals and, perhaps most importantly, an appealing tax regime specially designed to entice foreigners. Read on to find out more about what financial benefits Portugal has to offer.
Can British citizens live in Portugal?
While it’s no longer as easy as it was in the days pre-Brexit, it’s still possible for UK nationals to relocate to Portugal. The key difference is that you will now need a long stay visa to live in Portugal for longer than 90 days in any six-month period.
Portugal offers a wide range of visa options, but two of the most popular with our clients are:
- The D7 Visa (Portugal’s retirement visa, also known as a ‘passive income’ visa), which you can apply for if you have a foreign income equal to Portugal’s national minimum wage (currently around €8,460 per annum for principal applicants).
- The Golden Visa, which requires an investment in Portugal’s economy through the Portugal Golden Residence Permit Programme (e.g. purchasing a qualifying property).
Tax advantages of ‘retiring’ in Portugal
Portugal’s definition of retirement is surprisingly broad. You can relocate to Portugal and continue to earn foreign income and you might qualify to pay very little tax on that income.
What is Portugal’s NHR tax regime?
Portugal’s Non-Habitual resident taxation regime (NHR) was created in 2009 to promote the growth of Portugal, attract foreign investment and “high value” residents.
If you qualify under a high value profession, your employment income can be capped at 20% for the first 10 years.
Highly valued professions in Portugal
As of 1 January 2020, “highly valued” professions are:
- Director General and Executive Director of companies
- Directors of Administrative and Commercial Services
- Directors of production and specialised services
- Director of hotel, restaurant, business and other services directors
- Specialists in the physical sciences, mathematics, engineering and related techniques
- Dentists and stomatologists
- University and higher education teacher
- Experts in information and communication technologies (ICT)
- Authors, journalists and linguists
- Creative Arts and Entertainment Artists
- Technicians and Intermediate Occupations in Science and Engineering
- Information and Communication Technology Technicians
- Farmers and skilled workers in agriculture and livestock breeding for trade
- Skilled workers in forestry, fishing and hunting
- Skilled workers in industry, construction and crafts, including in particular metallurgy, metalworking, food processing, woodworking, clothing, crafts, printing, precision instrument manufacturing, jewellers, craftsmen, electrical and electronic workers
- Plant and machine operators and assembly workers, namely operators of stationary machines
To qualify, you must have at least the level of qualification of the European Qualifications Framework Level 4, or the International Type Classification of Education of level 35, or five years of duly justified professional experience.
Directors of companies promoting productive investments are included, as long as they are eligible for specific projects and tax concession agreements mentioned in Portugal’s tax code.
This list is due to be re-evaluated in 2023.
How to apply for the NHR in Portugal
The key Portugal NHR requirements are that you must have the right to live in Portugal and you must be a new Portuguese tax resident (you haven’t been tax resident in the five years preceding your application).
To maintain your status as a tax resident in Portugal, you need to live in Portugal for more than 183 days per year.
The NHR application is applied for once you have physically relocated to Portugal. This application can be done through a Portuguese accountant or online and can take a few months to be processed.
Even if you do not qualify for NHR, it’s worth speaking to a cross-border wealth adviser familiar with the tax regimes in both the UK and Portugal before you make a move.
Tax in Portugal for UK expats
The UK has a residence-based tax system. This means that if you are considered “tax resident” in the UK, you pay tax to HMRC on all of your worldwide income. This is important to understand for wealth planning if you choose to relocate, as tax residency doesn’t always align with physical presence in the country. A change of tax residency will also almost always mean a shift in how and where your investments are taxed.
Read more: Taxation in the UK: our guide to tax residency and domiciled status.
Wealth considerations before you move
Before you physically up and leave the UK, there's a lot to consider.
Ideally, you want to actually visit Portugal at least once to get a feel for the place and to get a proper grasp on the cost of living, what your life in Portugal will be like and to decide where you want to live and whether you want to buy or rent.
Before you apply for your visa and book your flights, remember to take time to consider how your existing tax and investment structures will change when you move. Wealth planning considerations are commonly overlooked and underestimated.
It's well known that us humans display extraordinary inertia when it comes to selling an asset that has done well and also one that has done poorly. We value things we own more than others do (it's called the ‘endowment effect'). So, if an asset has done poorly, we're convinced it will recover and if it's done well, we're convinced that outperformance will continue. These well documented behaviours get in the way of financial planning that needs to happen well in advance of migrating from one country to another.
Early discussions around your existing investment structures and whether they will continue to be suitable for you in Portugal is a crucial discussion to have with one our cross border financial planners. Careful and early planning could prevent sticky tax situations, assist you in maximising your tax benefits, especially under the NHR and ultimately save you money.
See also: Choosing the right advice to follow: How to select a trusted adviser.
25% of cash withdrawals from a UK pension are tax free in the UK. However, like many countries, Portugal generally charges tax on worldwide income. This means that you could be taxed as high as 48% on these withdrawals in Portugal. Fortunately, if you fall under the NHR regime, this is reduced to a fixed 10% for 10 years.
Wealth planning considerations include reviewing your existing UK pensions to ensure your investment strategy and platform is well-suited for you going forward. This includes a discussion around your future plans, investment strategies to mitigate liability mismatching by way of EUR denominated funds and/or to weigh up your options on whether to move your benefits to a Recognised Overseas Pension Scheme (ROPS).
With UK expats residing in the EU who hold UK Pensions such as SIPPs (Self Invested Pension Plans), our experience is that UK providers won’t let an adviser act on the account unless that adviser has UK permissions and is on a UK licence and EU regulations require the relevant adviser to be licensed in the EU to be able to advise an EU resident.
Sable Wealth and Sable Wealth EU are in a unique position in that we hold the relevant regulatory permissions to assist our UK expats living in the EU and specifically Portugal.
See also: Your financial planner should be your wealth coach.
Under the NHR, capital gains tax is exempt if you sell your UK residential home as a Portuguese resident. If you are not on the NHR regime and reinvest the UK property gain into your residential home in Portugal within 36 months of sale, the applicable CGT would be exempt.
Other UK investments
UK relevant products such as Individual Savings Accounts (ISAs) and insurance bonds in most cases are no longer tax efficient and suitable for the EU or Portuguese residents.
By redeeming these investments as a Portuguese resident, Capital Gains Tax rates would apply and, if domiciled in a Portuguese recognised blacklisted jurisdiction, such as the Isle of Man, the punitive tax rate of 35% would apply.
It makes sense to use Portuguese-compliant structures that, along with mitigating these issues, offer estate planning benefits and alleviate currency risk.
We are independent cross-border wealth experts who are regulated in both the UK and the EU and by being knowledgeable in both jurisdictions, we are able to assist you with seamless end-to-end wealth planning (which few other advisers can). Speak to us about financial planning to see how we can create the right solution for your needs.
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This communication is for informational purposes only based on our understanding of current legislation and practices, which is subject to change and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
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