Woodstore

Has anyone experience of getting this setup? It's a scheme for foreigners taking up residency in Portugal where any foreign pension or foreign sourced earnings outside of Portugal is then tax free for the next 10 years. A French resident colleague is now transferring to Portuguese residency and bought a house in Portugal in Dec 2014 and seems there's a deadline of registering for NHRS by 31 March 2015 to allow their 2014 pension to be tax free. Anyone has experience of the admin involved with NHRS? Also what defines foreign sourced income? How does this stack up as if you are now resident in Portugal and if the services billed are actually done in say Germany, then is this income foreign sourced ie no tax to pay? Does the income have to banked outside of Portugal to be foreign sourced? Anyone has experience it's appreciated.

EMR

If you are already resident in Portugal then that could exclude you.
Again if you are a PT tax payer this could exclude you.
You should take professional advice.

TonyJ1

PT taxpayer can get on the scheme provided they have been non resident for at least the previous 5 (tax) years. The difficulty may arise in that often they do not advise the PT authorities of their non resident status - but this is not necessarily insurmountable.

Ukkram

It gets very complicated. What I don't understand is the part that says " You must be taxed at source" if your income is from a foreign source.
The way I see it is that you will pay tax somewhere. If you get exemption in the UK due to the Treaty then you will be liable for it here. If you pay tax in the UK then you will be exempt here. So either way, you will be liable for tax somewhere.
Seems almost that you can pick 43% here or 40% there.

Not much updates over many years on the net about this.

Woodstore

Thanks for the replies. It does seem to be a tax specialist subject and does get complicated as France deems you still tax resident in France if you still have your 'centre of economic activity' in France ie you might transfer civil residency to Portugal without problems but if you still have a €1million house in France and now a €200k second but main house in Portugal, your tax residency probably stays in France despite NHR status in Portugal. Anyone heard of such situations?

cedricp

That sounds about right. You should read the Double Tax Treaty to determine which country ultimately has taxing rights.

AliceCaroline

I think it's pretty simple for UK pensioners.
Your pension is taxed at source at UK rates i.e. first £10000 tax free, up to £30000 at 20% ect ect
With the double tax treaty you'd then pay tax in Portugal up to their level, which is considerably higher because they don't have our large tax free personal allowance.
If you can get onto the non habitual residency scheme then you wouldn't pay that extra tax in PT.
That's the way I understand it, correct me if I'm wrong.

(I've heard that there is some complicated way of getting out of having your pension taxed at source in the UK, in which case with the NHR scheme you'd pay no tax)

EMR

I have yet to hear of anyone from the UK who has gained NHR status ?
I think only way to avoid having UK tax deducted at source on private pensions or any UK income is to be NON UK resident and NOT to visit the UK more than a specified number of days in each tax year.
There is a move in the UK to tighten up the rules on pension taxation .
NHR gives you tax benefits for a period of time not indefinetly.
AS it was explained to me is that if you got NHR but are still UK resident for tax purposes you would still pay your UK tax but would NOT have to pay the higher rates of PT tax.
Complicated or what !!!!!

AliceCaroline

I think it gets complicated if you try and get out of being taxed at source.
But if you leave your pension to be taxed at source in the UK then as I understand it you can get a PT tax code for 10 years (applied for each year) that makes your remaining UK pension tax free.
It seems worth the hassle if you can get onto it.
I think the idea behind it is to stop people being put off retiring to PT because they'll pay higher tax if they do, or from just living in PT "under the radar" as they say.
Paying the same tax as they would if they remain in the UK for ten years is a good incentive.
But as you say no one on here seems to want to admit getting onto the scheme

EMR

That is how I understand it but the saving will be just the difference between UK and PT tax rates a few %.
IE if the UK rate you pay is 20% and the PT 25% you if you got NHR status would save the 5%.
I cannot see Portugal paying back the tax you have had deducted in the UK.
After the tax holiday period you would then pay the difference between the two.
Now if you come from a country where you are allowed to export your pension free of tax then the saving is substantial.
I first came across this a few years ago with a client looking to buy a property in Portugal for that very reason.
But I have read that more and more countries are closing that loophole.

AliceCaroline

It's the UK Personal Tax Allowance that makes it a good deal.
If your UK pension is £10000 for example then on the NHR scheme you'd pay no tax.
Your pension would be tax free in the UK, but if tax in PT is 25% then you'd have to pay £2500 in tax in PT.
That is worth saving for 10 years.
Especially if you are on a low pension.
And I think the Personal Allowance is set to rise to £11000 soon.

EMR

But this only works if you give up your UK tax status and residence and can export your pension tax free to Portugal .
How many are prepared to do that ??

AliceCaroline

??
I don't understand that.
The £10000 Personal Tax Allowance is a UK thing.
If you are taxed at source in the UK you get the first £10000 tax free.

AliceCaroline

https://www.gov.uk/income-tax

EMR

If you only have a income of 10,000 in the UK as you say you would not pay any UK tax.
Under the NHR scheme you would receive relief for what ever the PT tax would be on that income.
EG if the PT tax allowance is Equal to £5000 you would save the PT tax on the balance.
So for the period of NHR you would be just as well off.
At the end of the NHR scheme you would start paying PT tax where in the UK you would still not be paying any.

But the scheme is not aimed at lower income margnal tax person but those who have a large company or private pension and other sources of income.
For them being able to export qualifying income under the NHR scheme tax free from the UK is an advantage.
Portugal wants those with" real " money to apply for the NHR scheme whocan benefit from the tax relief on pensions and lower rates on other income.