Diddion

Help!

My wife and I are partners in a firm - we are therefore both self-employed, and do not have a limited company with shares. In principle we intend moving to Portugal after January 1st 2018, and either selling our business in the UK (whilst UK residents) or waiting until we are living in Portugal before selling the business.

If we sell in the UK we will have to pay CGT at the entrepreneur's rate of 10%.

However, what happens if we move to Portugal, remain for sufficient time to gain tax residency, then apply for NHR which, I understand, will be backdated to the date of our arrival - and sell the business as Portuguese residents with eventual, backdated NHR? Is that capital gain exempted under the NHR rules, or is it taxable in Portugal (it won't be taxable in the UK, unless we return within 5 years)?

None of my internet research covers this situation - clearly we need to hear an authoritative voice - not guesses! Please post if you can cast any light, or do let me know if you can recommend a competent person who is prepared to answer this factual question (at a fee is fine), but at this point I do not seek global advice.


Thanks.

Loafing Along

Start with the Portuguese Tax Office Information Booklet on NHR, it is in english

http://info.portaldasfinancas.gov.pt...IRS_RNH_EN.pdf

Look at Section 2 - Capital Income ( Class E ) ?

Diddion

Thanks, Loafing Along.

As it happens I have just been looking at that very point. It does seem to me that the gain would be exempt, though I think there could still be a question. I understand that capital income is in effect a passive gain - such as that from the purchase and sale of an asset. However, this point is absolutely critical for us, so I am really looking for confirmation regarding our specific case. What is your interpretation of the booklet?

Thanks, David

Loafing Along

Based on the text of the leaflet I think you have a strong case but definitely worth a second opinion from a good tax lawyer in Portugal.. Can't really help you with that, suggest you check out some of the recommended contacts on www.angloinfo.com

liveaboard

Consult specialists of UK tax, Portuguese tax, and dual tax treaties before making any decisions; a consultation will cost you between zero and a hundred euros, while your savings or losses could be huge depending on how you time your moves.

Try Denis Swing Green at Eurofinesco; he's very good at this sort of thing.

Diddion

Thanks - will do

Diddion

The 'will do' above referred to Loafing Along. Liveaboard, I have emailed Eurofinesco and given them an outline, but have not heard back from them as yet. I have seen that a lot of people seem to be impressed with them - and I hope their fees are somewhat more reasonable than some others I have come across.......Useful to have your endorsement of that company.

carvoeiro

if you have a gain in the year in which you apply for residency in Portugal then you potentially pay tax on that gain - albeit with an offset against any tax already paid with any country with whom Portugal has a tax treaty
i fell foul of this when i arrived - Portugal insisted tax was due on a gain made earlier in the year - i was sure it wasn't - but here its very difficult to win
Easiest way to be safe is to apply for residency at the beginning of the following year

Diddion

Hi Carvoeiro,

Many thanks for your reply. This is concerning to hear - could I ask you for more information (pm if you prefer, of course). Was your situation significantly different from ours, below?

Our current plan is to move to Portugal, say around February 2018, and remain there for sufficient time during the 2018 tax year to become Portuguese tax residents. I understand (but correct me if I am wrong) that the tax residency will apply from the date of our arrival. Once granted, we will apply for NHR which, again, we understand can apply from the date of our arrival.

So: effectively, arrival and NHR from mid February. At the same time, relinquish our UK residency under split year basis. On or shortly after April 6 we will sell the business, so there can be no question of our being UK tax residents - the hope is that we would have neither UK tax to pay, nor Portuguese tax to pay - as long as we remain out of the UK for 5 years. Does anyone see anything wrong with this?

Thanks everyone - interesting input so far.

Loafing Along

Bear in mind that if you arrive in February you have to wait 90 days before applying for residency as until then you are a "tourist". Yes you can get a Fiscal number on Day 1 but your residency status is important .The NHR you do online once you have a Portuguese address to which the Tax Office can send password. Armed with that you get an answer in 48 hours or less on the Tax site.
Definitely talk to a professional advisor to make sure you get your timing right.

carvoeiro

we became full time 'habitual tax' residents here - so a different scenario

afraid i'm not well enough genned up on the rules for non habitual tax residencia

i believe these are accepted - qualifying income includes pension, dividend, royalty and interest income

i don-t know if your situation - sale of a company or shares of that company do

i believe if you can come here under the golden visa rules then what you stated would apply

Also there was a recent UK change to tax law on nhr - i think you should also review that

sorry now out of my depth - you really do need to speak to one of the expert specialist accounting firms

Diddion

Thanks, Carvoeiro - interesting answer. I was not aware that there was any change to UK tax law regarding NHR, though I know that the UK is considering removing or altering the personal allowance which (currently) expats from the UK can still use to offset profits on any UK rental properties. I don't think there has been any change as yet, though. Do you have any links or pointers towards any change in UK tax law on NHR?

I am sure that specialist advice is essential for us!

Diddion

Loafing along - I think that the 3-month rule and tax residency are two separate issues. In order to remain in the country longer than 3 months you have to apply for the relevant permit in month 4 - but that is not of itself a tax residency issue, just a right to be there.

To become tax resident you need to be in the country for 183 or more days in the tax year (or have a permanent home there at the end of the tax year0 - and according to Blevins Franks (and some others I have seen) the tax residency commences on the day of arrival on a permanent basis. NHR, once applied for within the timescales, can be backdated to the beginning of tax residency, so if we come to Portugal then we can (eventually) have NHR from that date of arrival. Do correct me if you think I am wrong.....

Loafing Along

Yes, absolutely right, I was just making the point about residence application cannot be done on Day 1. NHR certification is not backdated as such it is issued on full year basis, there is no specific month or day on the certificate , it covers the year of residency from January 1st and yes to the 183 + rule.

carvoeiro

the tax mans argument with us was that even though we didnt meet the 183 days rule we did meet the owning permanent residence - hence we owed money even though we registered in September of the year and the payments in question were made prior to that date
we thought they were wrong - but here they send a bill - if you don't pay they fine you and start recovery proceedings - even if you are later proven correct