Portugal is one of Britons’ favourite retirement destinations - and for many good reasons. It’s got a great climate, beautiful coastlines alongside historic towns and offers a cost of living that is lower than many places in Spain.
There are around 60,000 British people living in Portugal, and whilst those relocating for work tend to be in the two main cities, Lisbon and Porto, retirees tend to head for the Algarve. Viewed by many as a gentler, less developed version of the Costa del Sol, it offers world-class golf resorts, restaurants, sports facilities and marinas.
Portugal has been very forward-thinking about attracting wealthy retirees (and a fair few semi-retired) from overseas with tax incentives so on the Algarve there are also Scandinavian and other northern European populations, alongside the British and Irish. Let’s also not forget that attractive areas such as the Silver Coast, Alentejo and the coastline south of Lisbon are also attracting more interest - and the island of Madeira too.
But making a successful move to Portugal requires some careful forward planning and it is wise to take financial advice too. Here we provide a few pointers on the practicalities of moving to Portugal, including healthcare, pensions, wills and taxation.
Transferring your UK pension to Portugal
Retirees living in Portugal who are in receipt of a UK State Pension can opt to receive it into their UK bank or their Portuguese account. You may claim your UK state pension by contacting the International Pension Centre in the UK. There are different ways to receive it, either in the UK or directly in Portugal. For non-EU countries it will depend if there is an agreement in place between your country and Portugal (subject to negotiation in 2017).
If you decide to have your pension paid into your UK bank account in sterling, the rate received when you transfer it into euros will obviously vary, depending on the exchange rate. However if you use a currency transfer (or FX company) to send euros into your Portuguese account (see Settling In for how to set up a Portuguese bank account) they can set up a regular payments plan for transfers that will help you budget every month.
As you are only too aware in recent months, currencies yo-yo up and down and currency brokers can also offer you better rates than banks on the transfer of lump sums - not just regular transfers like pension or any other UK income.
In Portugal, the taxation of pensions depends on what type is being used - they differentiate between State Retirement and Occupational Pensions; Government Service Pensions and Personal Pensions. If you have complex or multiple pension funds it is advisable that you seek advice from a financial advisor before you leave the UK to find the most tax-efficient way of structuring these assets, whether in the UK or Portugal, or both. It is key that they look at your investments as a whole, not piece-meal, at the outset.
In Portugal there is a National Health Service -Serviço Nacional de Saúde (SNS) - that is generally excellent, and English is widely used as the language of communication. The World Heath Organisation ranks it number 12 (the UK is number 18).
You should be treated in the same way a Portuguese citizen would, but although state-provided healthcare in Portugal is generally free of charge, there is a patient contribution, which varies depending on how you access the health service. For example, GP consultations cost less than a consultation at the accident and emergency department of a hospital. X-rays, scans and other tests also require co-payment.
The hospital network consists of modern and well-equipped units throughout the country and to make overseas patients feel more comfortable they have been implementing patient monitoring and personalised care programmes.
Retirees can also be reassured that the superb Integrated Medical Emergency System offers rapid-response times - in fact the average response time of seven seconds is much faster than the UK’s.
If you are a national of one of the 27 European Union countries, Iceland, Liechtenstein, Norway or Switzerland, you must show your European Health Insurance Card or EHIC (issued in your country of origin) and your passport or identification document in order to gain access to free or the low-cost healthcare referred to above.
Overseas citizens holding Portuguese residency permits must be registered at a health centre (centro de saúde) and must hold a “User's Card”, which may be obtained at the Health Centre by presenting a document showing proof of residence authorisation. Non-EU expats will also need to provide a social security card.
Private healthcare in Portugal is steadily gaining popularity among expats and becoming more readily available. All the private medical centre and private hospitals work with the international private medical insurance companies and there are reciprocal agreements in place with UK insurers such as BUPA. There are many British doctors and dentists in private practice in Lisbon, for example.
Many of the estate agents well versed in selling to overseas buyers will provide help in matters far beyond the home-purchase process, from how to register for utilities, to how to find tradesmen with to help fix it up and also healthcare and schools. Some agents are UK expats themselves, and will have gone through the same process so understand that a little hand-holding can go a long way.
Even if your agent doesn’t have a dedicated “after sales” department for such matters, you’ll find plenty of people ready to help, from expats already based on your street or development (do go and introduce yourself), to various societies and forums (such as expatsportugal.com etc).
On the Algarve, if you play golf, you’ll quickly find yourself part of an expat social scene. Bars and restaurants organise golf days, with followed by dinner and drinks.
There are many other ways to meet people to - from theatre, biking, bowls or running clubs on the Algarve to pure social clubs. There is a very active side to a life lived mainly outdoors, and expats do always say how much healthier they feel after a move to Portugal.
Portugal is a very friendly place but Portuguese is a tricky language to learn, whilst we are lucky that English is widely spoken in the main cities and tourist hubs, it is always useful to try and learn some basics.
If you have purchased a property you will have already set up a Portuguese bank account, but if you are initially renting you will need to do this - open an account, you will need your passport, a Portuguese fiscal number (which you can obtain at the local Financas), proof of income and proof of address. Bear in mind that Portuguese personal banking is not always free. Many current accounts have small admin charges and small fees for replacement debit cards or counter withdrawals etc.
You will also need to sort out your residency. You will need to register with the town hall (camara) to obtain your “residencia” (or Certificado de Registo de Cidadao da Uniao Europeia). For this you will need your passport and sign and declare that you have sufficient funds to support you and your family, along with valid medical insurance. You may be asked to provide other documents such as bank statements. Note that you should take advice about the type of residency to apply for (see taxation section).
If you are taking a dog to Portugal, you’ll also need to get it registered with the local council (and micro-chipped).
What about driving in Portugal? You may drive in Portugal using your valid EU driving licence from your own country for up to 90 days if you are not a resident. After 90 days you apply for your residencia and, once it’s issued, you have 30 days to register your driving licence with the Portuguese driving authorities (IMTT). Make sure you carry your documents with you at all times when driving (these include your licence, insurance, IPO (similar to MOT), fiscal ID card, and Certificado de Matricula (vehicle registration certificate).
Living Costs in Portugal
One of the most appealing aspects to spending time in Portugal is its affordability. Whether it’s buying a coffee, a beer or menu do día (menu of the day) or travelling by train, you’ll find that day to day living is cheaper than in the UK.
Your food budget will be noticeably less if you don’t buy lots of expensive imported goods, and eat fresh produce from local markets and buy local wine (of which there are many great varieties). You will particularly notice the affordability outside the major cities - Lisbon is inevitably more expensive for dining out than anywhere else, even in Porto, but much more so than villages or non-tourist towns.
Buying a car and petrol costs are considerably expensive in contrast to many other parts of Portuguese life (and there are toll fees on motorways) but public transport options are cheap and efficient.
Do use a currency broker if you are regularly transferring amounts over from your UK based source of income to your Portuguese bank account (there is no sane reason not to) and make sure you are aware of the all the running costs involved with owning a home in Portugal.
As well as annual property tax, IMI (see Taxation section) you will also need to pay condominium charges (community fees) if you live on a development with common areas that need to be maintained - such as gardens, pool, elevators, security. As a rule of thumb wherever you are, the more facilities there are, the higher the charges.
If you run your own swimming pool this will incur extra costs, but the cost of household help (gardeners and cleaners) tends to be lower than in the UK (if you are outside of Lisbon). Buildings insurance and contents insurance tend to be similar to those in the UK, and utility and broadband bills tend to be roughly the same, or a little cheaper.
Wills and Inheritance
People fail to make a will for many reasons but when you buy a property in a different country, or relocate their full time, it is even more important that you make a will (and keep it updated). It will save a lot of extra heartache (and possibly expense) to those left behind if you do, especially when they might me living in a different jurisdiction.
By Portuguese law, if you do not have a will and die resident in Portugal all your assets will be distributed by the “forced heirs”. However their Civil Code states that the will of a foreigner national is governed by their national law so a will that is valid under UK law will be recognised by the Portuguese authorities.
However …the translation and legalization costs can be very high (running into several hundred pounds) and the process cumbersome so it is recommended that all foreigners living in Portugal make a Portuguese will that will save time and money - and as a foreigner you do not have to leave it to forced heirs.
Your Portuguese will (and you can have one in each country) will allow to your heirs to access the assets they inherit, not only real estate, but also others such as savings accounts, which your surviving spouse will not be able to access, unless previously recognized by the Portuguese authorities as the lawful heir.
Inheritance Tax (IT) in Portugal is very favourable. Not only does it only apply to Portuguese assets, it’s also only 10 per cent - and your estate will be exempt from the tax if you are leaving it to a spouse or your children.
Portuguese Tax for Retirees
When it comes to taxes, Portugal is just as complex as any other country, and - just like France - suffers a few complaints about it fondness for bureaucracy. But the good news it that it’s one of the most generous in Europe and so that’s been helping to attract expats.
There’s a lot of information on the internet but it’s always worth checking with a reputable tax accountant to ensure you’ve got it covered correctly for your personal situation.
The different types of residency in Portugal can have a big impact on your taxes so your advisor should suggest which types might help reduce these. Likewise, you will need to decide where best to keep savings and investments - whether to leave them in the UK or move them to Portugal.
Generally speaking, Portuguese residents are taxed on salaries, capital gains, real estate earnings and income from abroad. Foreign earnings may be covered under a tax treaty that will avoid you paying tax in both countries (a double tax treaty).
Part time residency and other situations may mean that income tax is only to be paid on income in Portugal and not on income earned in other countries.
If you retire to Portugal and spend more than 183 days a year there you should become tax resident there. In 2009 a regime was introduced to attract overseas individuals and families to Portugal by making it beneficial to be tax resident.
This is the Non-Habitual Resident Scheme or NHR, and has been very successful at attracting Northern European expats, especially Scandinavians who are highly taxed at home.
You can enjoy NHR status if you have not been a Portuguese tax resident in the previous five years. The status can be maintained for ten years and successful applicants enjoy a flat rate of 20 per cent on income and preferential rates of tax on pensions, dividends and some other forms of income (from a non Portugal source). There is also no inheritance tax, gift tax or wealth tax in Portugal for non-habitual residents.
Also non-EU nationals can apply for the fast-track “golden visa” scheme if they buy a property worth €500,000 or more (seek specialist advice on this if relevant).
Remember you will need to inform HMRC that you are no longer tax resident in the UK and also that you will need to register as a tax payer in Portugal. You need to complete a registration form called the “fiche de inscricao” and then submit it via your local tax office.
Portuguese tax residents are required to submit an annual income tax return early in the following year after their arrival. The deadline for the Portuguese income tax annual return depends on the type of income you receive but for retirees (rather than employees) it is typically April 30th. The tax year follows the calendar year and ends on the December 31st. Beware that failing to correctly submit your Portuguese tax return and payment on time can be costly.
There are also some annual taxes to pay. The Portuguese equivalent of council tax (Immovable Property Tax or IMI) is based on the ratable value of your home (ratable value is around 70 per cent of the sales price). This also depends on the locality and whilst for rustic properties the tax is 0.8 per cent, for urban homes the rate varies between 0.3 and 0.8 per cent (depending on when its tax value was assessed and locality). Properties with a tax value of €1m or over will be subject to an additional tax of 1 per cent. If you drive you will also need to pay road tax (IUC).
We have already referred to driving documents, healthcare, pets and don’t forget life assurance (seguro de vida). In Portugal, life insurance may be required for a mortgage, and do assess the burden of retaining foreign life insurance while you are resident in Portugal - will your existing life insurance policy move across borders?
If you are over 65 you may apply to your local Junta de Freguesia (civil parish) for a Cartão Senior (pensioner card) that will entitle you to certain discounts including train travel or on certain entertainments.