Ukkram

Been doing research on this for weeks.

Seems if you immigrate to PT then all your property excluding main residence will be deemed as sold in the UK (and most countries) on the day you are regarded as non-resident and re-bought at the same price the day after.

Capital Gains Tax will have to be paid on any gains and the Base Cost will be readjusted for PT tax to start at zero gain or loss.

Much like starting starting a new clean page on any investments in PT.

The word "property" includes shares in stocks and any securities and private annuities.

Ukkram

This is very real and I will test it tomorrow at finanças. I cannot fathom that no body has any investments in the UK. Perhaps if ignored it will go away type of thinking?

PT IRS wants to tax me on all my earnings from investments 3 years prior to immigrating here. This is incorrect as they have no say over my tax before I immigrated here.

I will see tomorrow if I can find an English speaking person.

Pilou

Capital Gains Tax will have to be paid on any gains and the Base Cost will be readjusted for PT tax to start at zero gain or loss.

When you emigrate to Portugal and the UK law says your real estate is treated as deemed sold as you say, then Portugal must have a similar tax lax. Because there was no sale!
When you would emigrate to Holland or to France or to Spain, the tax authorities would not take that seriously as a sale. I think there is a big chance that you don't pay tax in Portugal on a gain of this "deemed sale".

Capital Gains Tax will have to be paid on any gains and the Base Cost will be readjusted for PT tax to start at zero gain or loss.

Watch out: if a depreciation is allowed in the UK when selling a property and as a result you only pay a small amount on your capital gain, you might pay much more in PT if the PT law will not accept this depreciation. PT will look at their law as if you sell in PT.

I almost had this terrible experience: house in France and emigrate to Spain. In France you hardly pay any tax when you sell after 20 years. BUT in Spain you just pay tax on your capital gain. This means that when we sell, we don't pay tax in France on our house in France, but Spain will take it all. The tax treaty says that I need to report the capital gain on the house in France and as a tax relief I can deduct the tax I paid in France. Because I did not pay tax in France, Spain will have it all and I am the loser.
Because I knew this before, I did not sell.

Ukkram

As a stock trader, I made a huge capital gain while I was a tax resident in South Africa.
I applied my time, wit and effort while a tax resident in SA.

I cannot see why Portugal is wanting this tax as I was on SA territory when I made the gains. They have no right to it.

Pilou

You sold when you were still resident in South Africa?

Ukkram

No. I sold after a year of arriving here but PT has no rights to the gains I made prior to my tax residency here. They also cannot question my tax before arrival.

EMR

But we're you tax resident in Portugal when you sold , in which case it counts as part of your income in Portugal ?

Pilou

You make a gain when you sell and not before that moment. Portugal has the right to tax the gain. I understand your feeling, but that is the way it is. This is quite standard.

For example: we bought a house in France 30 years ago for 100.000. On January 1, 2016 I move to Spain and sell the house in France on June, 1 2016 as resident in Spain.
The sales price after 30 years is EUR 400.000. France has the right to tax the gain, but after 30 years they give a tax relief.
BUT Spain has no tax relief in their tax system. Spain will tax the gain of EUR 300.000 and I can deduct the french tax (zero). The spanish tax is EUR 60,000. It feels as if Spain has no right to tax this. This is a french matter. The value increased when I was tax resident in France. This feels as unfair. But this is the law.

This is the same what happened to you. It feels as if Portugal has no right, but they have the right. It is the moment of the sale that counts and not all the years before that moment.

I share your feeling, but you cannot do anything about it.

Ukkram

You are speaking about immovable property CGT. I have not read the DTA's between Portugal and Spain, France, UK etc but they are generally similar.

My DTA states that CGT on immovable property may only be taxed in the state the property is situated in. CGT on movable property can only be taxed in Portugal.

However, the South African Receiver of Revenue's website states this: (copy and paste)

Emigration: If you're a South African resident, when you emigrate, or your company is no longer a controlled foreign company, you're deemed to have disposed of your worldwide assets where you're no longer a resident.

This disposal doesn't apply to immovable property or any right to the immovable property. It also doesn't apply where you've acquired the right to obtain shares in terms of a share incentive scheme.

So when you emigrate, you'll realise a capital gain or loss on the deemed disposal of your worldwide assets.

The gain or loss is the difference between the cost of acquisition, (i.e. what you paid to get the assets) and their market value. The realisation of the gain or loss occurs on the day that you emigrate.

If you're a non-resident, you're deemed to have disposed of any asset which:

Becomes an asset of a permanent establishment in South Africa by a means other than acquisition.
Ceases to be an asset of a permanent establishment.

What about immigration?

If you immigrate to South Africa, or your company becomes a controlled foreign company, you'll be treated as having disposed of each of your assets and acquired each of those assets at their market value on the date of immigration.

This means you won't be liable for CGT in South Africa when you immigrate here.

But the market value of your worldwide assets (on the day immediately before you immigrate) will be the base cost of those assets if you dispose of these in the future.

Now that you know how CGT works if you're migrating or immigrating, make sure you comply to avoid penalties.

Pilou

"My DTA states that CGT on immovable property may only be taxed in the state the property is situated in. CGT on movable property can only be taxed in Portugal."

This is the danger!!!! When I sell my house in France as a resident in Spain, France has the right to tax. BUT as a resident in Spain I am taxed on my worldwide income, including the gain on selling my house. I can deduct the tax I paid in France, but that is zero after 30 years. So I pay the full tax in Spain on the gain I made by selling the house in France.

Ukkram

You have to pay the tax somewhere but not twice. The tax in Spain is higher so you would have to pay the difference to Spain. Then again, CGT is called Savings Income and will be added to all other savings income and interest income and deductions will apply to it.

Deductions for inflation can also reduce the tax burden in Spain.

RichardHenshall

Ukkram, did you actually pay CGT (or exit tax) to SA when you emigrated?

When you made a tax return to PT did you compute the gain based upon the acquisition costs being the market value and date of emigration/immigration? If so, PT will only be taxing you on the gain since your arrival.

Ukkram

I did file the tax return to the SA Revenue Service showing the value of the shares held the day before I emigrated.
My e-filing work page still shows "Please note that your assessment cannot be processed as there are certain aspects that require manual intervention.
SARS will advise you as soon as your return has been assessed".

This is 3 years after filing it.

However, the domestic tax law in SA states that all assets held will be deemed as sold the day before emigration and re-purchased at the same value the next day.

This overrides the DTA as it was an action before emigration took place so Portugal has no right to the tax regardless of if it was paid or not.

RichardHenshall

That seems reasonable, whether legally correct or not. I'm still unclear how the Portuguese tax man can assess tax on the earlier period of (SA) ownership, unless you or your accountant has provided information about it.

Ukkram

AT asks for proof of purchase of the shares and this reflects the base cost and this is the cost they work on going forward.

They disregarded the domestic tax law in SA. I have now contracted a very expensive Cross Border Tax Lawyer to fix it and he is very confident to do so.