Moving to Portugal is more popular than ever. Here Jason Porter of Blevins Franks provides some essential intel.
Residence and healthcare
Currently, the EU Freedom of Movement rules enables UK nationals to move to Portugal and remain indefinitely, without the need to obtain a formal residence permit as a non-EU national. This will remain the case if a Brexit deal is done, until 31st December 2020. People who move prior to this date would then have their rights protected.
You are required to formalise your residence by registering at your local town hall. If you do not intend to work, you would need to provide a valid passport and a declaration that you have sufficient financial resources for yourself and the family accompanying you.
After five years of legal residence, you may apply for permanent residence with the immigration authorities (Serviço de Estrangeiros e Fronteiras).
Once you are registered as a resident, you are entitled to state healthcare. Use either your residence certificate or alternatively, a form S1 from the UK DWP as someone in receipt of the UK state pension, to obtain a medical card from your local health centre.
Going forward, the requirements for non-EU nationals may need to produce additional documentation, but this is not particularly onerous.
There's always tax...
If you have already opened a Portuguese bank account or acquired a Portuguese property, then as part of the process you would have obtained a número fiscal de contribuinte (NIF, a Portuguese tax number). If not, you will need to get one. You will also need to complete a tax registration form “fiche de inscricao” and then submit this to your local tax office.
The Portuguese tax year follows the calendar year. You are tax resident in Portugal if you spend 183 days in a calendar year in Portugal, or if your permanent home is there, or the majority of your economic interests.
Residents of Portugal are liable for Portuguese tax on all worldwide income and some capital gains tax.
If you are not yet tax resident in Portugal and have not been resident in any of the last five tax years, you could take advantage of the ‘non-habitual resident’ (NHR) regime. This offers new residents special tax benefits for their first ten years in the country.
Most foreign-source income is not taxable under the scheme, so you would not face Portuguese tax on gains from UK property, for example, and British retirees can generally receive UK pensions tax-free. Those employed in Portugal in a ‘high value-added’ profession could also benefit from a fixed 20% income tax rate under NHR.
For retirees, the main benefit can be utilising a combination of NHR and the UK-Portuguese Double Tax Treaty, with the UK’s “pension freedoms” to extract the whole of the pension fund, without suffering any taxation in the UK or Portugal.
Even where you may be in receipt of an annuity, this would be tax-free for the first 10 years, and thereafter it may be possible to obtain favourable tax treatment, where only 15% of the amount received is taxable (the other 85% regarded as a return of capital).
Even if you do not qualify for NHR or you have lived there for more than 10 years, Portugal can still be a tax-efficient place to live, particularly if you are living off capital and investments. Many UK nationals living in Portugal choose to hold any investment portfolios via an “offshore life assurance contract”.
This is effectively a tax wrapper, where any income and gains roll up, with no tax payable on any growth as it arises. It is only when a withdrawal is made that a tax liability may arise. Even then, the taxable element is not the whole “profit” accrued to date, but a proportion of it.
Portugal’s version of inheritance tax (confusingly known as ‘stamp duty’) is a lot gentler than the UK’s – it is fixed at 10%, only applies to Portuguese assets, and is not chargeable on assets passed to children, a spouse or parents.