Sally1605

Hello again

I have got my appointment with VFS Manchester sorted (end of May), so I’m now fretting about more important things!

Apologies in advance for the list of questions to follow.

My plan is to sell my UK home, which will give me enough money to buy a modest place in Portugal and leave me with enough money to live on ( hopefully) until my pensions kick in.

First question, and probably unanswerable as it’s a bit subjective; my planned income will be around twice the Portuguese minimum wage level. (€18000 pa). I currently live very modestly, ( this won’t change) don’t travel and apart from running a small car don’t plan to have any major outgoings. Does that seem a doable figure to live on?

Second question, do I invest the money I’m going to live on in the UK or Portugal? I have a buy to let property in the uk which I plan to keep ( it is mortgaged until my retirement age date), but I pay tax on the income which uses about half my allowance, So any income from an investment in the UK would presumably take me over my tax free uk allowance? But is that still better than paying tax on all of the income in a Portuguese investment? My financial advisor in the UK will only advise on investments in the UK and I haven’t spoken to anyone in Portugal yet ( suggestions for someone in the area North of Lisbon would be much appreciated) btw, do I see them in person or can it be done by phone/email?

As you can probably tell I’m not very clued up on financial things, so any thoughts on the best place to put a lump sum which is relatively safe, and with the ability to draw down a yearly income would be appreciated too.

Feel free to tell me I’m crazy and this is completely unworkable 😊

Alan PT

That amount to live on seems very doable, it will go further than you think

Th financial planning is more complex. Just because something is in the UK doesn't mean that you pay UK tax on it and not Portuguese tax, it depends on the details of the asset type. Ideally you don't want to be filling UK and PT tax returns and calculating double tax allowance offsets between them. It's not terrible to do, but it's a pain

If you are convinced it is a move for life, I'd be tempted to divest the UK assets, out of simplicity. If you want to hedge your bets, you could consider investing in the UK before you leave (eg you could put money in an ISA, which will remain UK tax free, but will attract PT tax). Have a look at the Portuguese Finance Tips thread for some other thoughts, but it's hard to make specific suggestions as a lot depends on your personal position and priorities

Rambling archer

On the matter of rental income in the UK when you have become non-resident UK, and are resident PT ... have a read of these
https://www.litrg.org.uk/tax-guides/savers-property-owners-and-other-tax-issues/property-income/non-resident-landlord-scheme
and
https://www.gov.uk/government/public...dividuals-nrl1

basically if the income expected over the year is less than your UK personal tax allowance, you can fill in a form so that you do not have to pay tax but will have to complete a Self-Assessment Form which will confirm the amounts you actually receive that tax year. You may even find that after a couple of years filling in the SAF, they agree that you no longer have to do that in future years until circumstances change ... As an income from outside PT which is already "taxable" in its country of origin (UK) PT will not tax you on it if you can get NHR (Non-Habitually Resident in Portugal for 5 years prior to your new Residency in PT), though you will have to declare the income on your PT tax form for reference.

As to investment of your cash for a regular income, that is more problematic and you need to take careful advice!

SgtTroy

If I may, very briefly - your UK allowance is one thing, your PT tax liability is another.

You may have UK income from whatever sources of £12,570 (or even more, if we factor in dividends, interest, CGT, etc allowances) and your UK tax liability may be zero, but that doesn't mean that your PT tax liability would be also zero.

Another thing that no one could tell anything about is the inflation - you may draw down a stable annual income of 5% net on, say, £300,000 invested, and assume that £15,000 pa (€18,000 currently) would be good, but what if the inflation would be 10%, or 20%? What if £1 is not worth €1.20, but €1.10?

Andyj100

I think after 5 years as a non-resident you are only liable for for U.K. CGT post 2015. If you’ve owned the place for a long time this may be worth investigating.

you can keep your U.K. taxable allowance, including CGT, but I think you need to file a tax return. I assume any tax paid in the U.K. will be deducted from your portuguese tax bill under the tax treaty.

selling everything up and the move coinciding with the start of one of the tax years would be simpler. It would mean the CGT on the rental property would be easier.

I’m encouraged by opinions on the 2x minimum wage base case.

Moses2013

That is a good point you make and there is a thread in the Spain section regarding cost of living. Even in the past people bought properties based on the exchange rate they had then and thought they got more house for their money. What happens when the pound is worth less and is that in the calculation? If you want peace of mind and plan to retire in the EU, probably easier to keep the money in € and focus on the country where you live. Of course for me living in Ireland it's easy to say and we don't have the challenges of Brexit (Visas, currency etc.).

Sally1605

Thank you everyone, I will check out the info Alan on the finance thread.

Rambling Archer, my understanding is that anything that has been dealt with by the uk tax system ( whether tax is due or not) is then not taxable by the Portuguese tax system, ie you don’t get taxed twice, or have I misinterpreted that point?

Sgt Troy, thank you that’s a really good point, I’m hoping to invest my money in something very safe but that gains so much interest I don’t need to worry about inflation. I will of course let you all know when I find it!!!

Andy, I have owned the btl property since 1999, but it was my home til 2016, so capital gains will be applied to any increase in value since 2016 I think? Someone has mentioned making it my primary uk residence before I sell it but I’m not sure if that would work.

Btw, it’s a very cold 9deg here and we have been threatened with frosts this week. Any issues with tax will be worth escaping the uk climate for.

Moses2013

Wow, not the Algarve but at least 17deg and sunny in my part of Ireland.

chislenko

To move to a Schengen country now from UK do you not need to show a certain amount of assets / income or have I got that wrong?

Rambling archer

Sally asked "Rambling Archer, my understanding is that anything that has been dealt with by the uk tax system ( whether tax is due or not) is then not taxable by the Portuguese tax system, ie you don’t get taxed twice, or have I misinterpreted that point?"

As I understand it - If you have NHR status, then it is not taxed by the PT system but you do have to declare it to PT in case it might affect any other taxables whether you have any or not! (for instance if you have your investment income from a "Tax Haven" such as Isle of Man or Luxembourg, or the Caymen Islands that might be taxed even under NHR, and if you were to work in PT then that income's rate of tax would be calculated on your overall incomes) ... If you are not NHR then any tax that you might have paid in UK is declared to PT and is taken into account so that if PT charges at a higher rate, then you pay that difference to PT and if at a lower rate you don't get a discount!!!! But on the whole you don't get taxed twice on the same income.

SgtTroy

Yes, if you are British citizen, you now need a visa to reside permanently in any EU country. There might be some exception regarding Ireland, but that's about it - from Finland to Portugal and Cyprus - visa.

NSG666

Income Tax - it can be confusing but once you are PT tax resident then you will be subject to PT or NHR tax e.g. let's say you were drawing only your state pension c. £10kpa that would not be taxable in the UK but it would be taxed at 10% under NHR same if you were also drawing £10kpa from a private pension your UK tax liability is still zero but you pay PT tax on £20k

Finding somewhere to invest your money that is both very safe and give growth in line with or above inflation is the holy grail probably buried under hen's teeth and rocking horse poop. Seriously though you are unlikely to find anything 'interest bearing and safe' that will grow and you'll possibly be advised that you do need some exposure to a mixture of investments including equities but your FA will explain that to you.

Alan PT

The 5 year rule is only relevant if you return to the UK within 5 years, then you are treated as "temporarily non-resident" and different rules apply (I'll assume that isn't the case here)

The 2015 date is relevant as that's the date when UK residential property became liable to CGT for non-residents, so that's also the date to calculate gains from (though if you didn't happen to have a valuation of your house done in 2015, some referencing and calculation is needed)

It's a complex area, so some reading is highly recommended. Note that you MUST submit the (long and complex) non-resident CGT declaration to HMRC within 60 days of conveyance completing, otherwise they can (and will) charge penalties, even if no tax is due. It took me about 2 hours of concentrating and swearing to carry out all the calculations, even though our case was pretty simple, so don't leave this too late!

Try these links for some more background:
https://www.gov.uk/guidance/capital-...ntial-property
https://www.litrg.org.uk/tax-guides/...ital-gains-tax
https://www.blevinsfranks.com/uk-cap...gal-residents/

On timing the UK will apply "split tax year" rules, so timing isn't a big issue there. Timing is worth a thought on the PT side, if you are close to a year end, if only to maximise the NHR time.

Alan PT

General point to be aware of, NHR is not a magic answer, there's some categories of income it doesn't cover. Most importantly, if you are investing, capital gains on shares are not covered and so are taxable in PT. Dividends are complicated, depending on the type of dividend (which isn't always obvious) they may or may not be taxable

The double taxation agreement is also not a magic answer, nothing will be automatically sorted out for you, the onus is on you to declare and claim the exemption where needed. It's worth reading the actual agreement, it's actually relatively short and fairly understandable: https://assets.publishing.service.go...-_in_force.pdf

One bit of good news - pensions are pretty easy. If they are public service pensions then they are always taxable in the UK and not in PT. If they are private pensions or the basic state pension then you can (should) ask for them to be paid tax free in the UK and then pay tax in PT (at 0% or 10% under NHR, depending on when you got it)

Don't be too intimidated by all this, it's not rocket science, just requires a few hours of reading fairly boring documents and getting your head around the way things work. But it's worth taking the time to understand and do it right,

SgtTroy

Split year is not granted and could be applied subject to certain criteria listed on HMRC website, which might cover the mainstream, but do not cover a number of real life situations - self-employed, pensioners, etc.

If you want to further complicate the matter, have a look at the Statutory Residence Test.

In practical terms the best time to move would be either in the two months before 6 April, or in the two months after that.

In the first case the OP would remain UK resident for the whole year, but would hardly have any foreign income in Portugal for the first two months of residing there, which could increase her UK liability, and even if that happens, the additional tax would be offset by the PT tax paid.

In the second case the OP would likely be a non-resident in the UK for the whole year, considering the relevant ties as defined in the SRT.