Financial Planning for Expats in Portugal
Portugal has been attracting expats and retirees for decades now, and with good reason. Safe, temperate and with a fascinating culture, there is much to appreciate. Portugal also offers many financial planning opportunities for foreign residents. Careful planning is recommended to avoid mistakes and maximise the planning opportunities.
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Getting set up in Portugal
Are you moving to Portugal, or live here already?
Continue reading to understand the basics, or speak to an expert for tailored advice
Before you arrive
When you move to Portugal, your tax-efficient assets (ISAs, pensions, property etc.) are taxed differently, and you lose access to your UK tax allowances and reliefs. It is therefore crucial that you seek advice to avoid an unnecessary tax bill. This may lead to selling a property, closing a savings account or liquidating an investment before setting your affairs up for life in Portugal in a more tax-compliant manner. Be sure to speak to an adviser as early as possible in the moving process.
Non-Habitual Residence tax regime
Portugal’s Non-Habitual Residence regime (NHR) is available to all individuals that move to Portugal for the first time, and it can reduce your tax bill dramatically.
Under the NHR, you are given tax exemption on your earnings generated outside Portugal (includes capital gains, passive income and income earned working remotely inside Portugal). This extremely attractive regime lasts for a period of 10 years.
When used in tandem with Portuguese Compliant Bonds (see below), the NHR tax treatment is a powerful financial planning tool at your disposal. In most cases, a competent adviser will be able to build a highly profitable financial plan for you with these two tools alone.
Portuguese Compliant Savings & Investments
Whilst UK tax-compliant vehicles (such as ISAs) are no longer efficient for residents of Portugal, other vehicles exist that are especially designed to offer similar tax benefits. These are usually specialist offshore structures that report to the Portuguese tax authorities. These are long-term savings and investment vehicles, where the level of tax payable reduces as you hold the asset for longer. They are commonly known as Portuguese Compliant Bonds
Portuguese Compliant Bonds
Portuguese Compliant Bonds are investment vehicles that allow residents of Portugal to invest in funds, shares, ETFs, gilts, bonds, unit trusts, investment trusts, REITs and more. The term “bond” does not mean that we only invest in fixed-income securities. It is simply the name of the vehicle (much like a stocks and shares ISA in the UK).
The tax benefits of a Portuguese Compliant Bond are very interesting. Where standard Capital Gains Tax in Portugal stands at 28%, this can be reduced down to just 11% by holding this type of investment for the long term. What’s more, this 11% tax charge can be reduced even further by planning investment withdrawals intelligently.
There are several other tax benefits that come with investing via a Portuguese Compliant Bond. For example, tthey offer gross roll-up – which means we defer tax until we withdraw from the account – and we’ll only be taxed on the growth element of any withdrawal.
Pensions & Retirement
The issue of pensions is a complicated one that requires an individual analysis. Depending on your own circumstances and the type of pension(s) you hold, you may stand to benefit from transferring into a dedicated Portuguese/European compliant pensions vehicle. These are known as QROPS or International SIPPs. Watch our dedicated webinar on the subject via the button below to learn more.
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