Would you like to move somewhere warmer than the UK to work or retire, with only a short flight home to keep in touch with family and friends?Well Portugal should definitely be top of your ‘tax’ choice.
Since 2009 Portugal has provided a particularly generous tax regime, available to all individuals becoming tax resident, which lasts for a period of 10 years. This Non Habitual Residents Scheme (NHR) is aiming to attract talented individuals working in high value activities, as well High Net Worth Individuals to consider a move to Portugal.
Earnings in Portugal
The scheme allows earnings from professionals such as doctors, dentists and engineers to be taxed at a flat 20% rate rather than the normal progressive rates of up to 48%.
Other UK Income
In general the NHR scheme exempts non Portuguese income from the charge to Portuguese tax, which includes dividends, interest, and rental.
UK tax would still potentially be due on UK sourced income, (even if non UK tax resident), but in exchange for giving up your personal allowance, the tax due on UK investment income can be restricted to the amount of tax deducted at source (if any). This can allow for significant UK dividend and interest income to be paid tax free in the UK and Portugal.
Whilst resident in Portugal, UK pension income is taxable only in Portugal under the Double Tax Treaty. Since Portugal does not tax pensions, the UK pension income would be outside the scope of tax. The relatively new UK pension freedoms allow individuals to withdraw entire pension funds in one go, and there is usually no avoiding the UK PAYE tax deducted at source on such withdrawals, but a full UK tax repayment can later be claimed, assuming evidence of Portuguese tax residence is provided to HMRC.
Capital Gains on UK property
If you are non UK resident, there is no getting away from UK Capital Gains tax on selling UK residential property, and the individual must report a sale within 30 days of disposal, and potentially pay any tax due at that point. However, in calculating the chargeable gain, the April 2015 market value of the property can be substituted for the original cost, which can mean the gain is reduced significantly or reduced to nil. Individuals seeking to take full advantage of this rebasing position in the UK would have to achieve 5 full years as a non UK resident, but should consider the tax implications in their overseas country of residence, and again Portugal would exempt the gain under the NHR scheme.
Wealth / Inheritance Tax
The UK will impose inheritance tax on a UK domiciled individual’s worldwide estate (irrespective of residence on death), however there is no Portuguese wealth taxes (compared to say Spain), and inheritance tax would only be payable on non Portuguese assets.
Becoming tax resident in Portugal can be relatively easy to achieve, and the NHR scheme certainly makes this a very attractive ‘go to’ tax haven for many.
We are perfectly placed to help plan and manage non UK tax residence, and combined with our experienced Crowe Horwath International affiliates based in Portugal, we can also ensure you meet the criteria to take full advantage of the NHR scheme.
Please get in touch with Lynn Gracie (email@example.com) or your usual AAB contact if you would like to explore this in more detail.
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