Benjiman

I've tried hard to find an answer to this online. Can anyone help?
As a Portuguese resident, who pays UK tax on rental income generated in the UK, am I required to pay any tax on that rental income in Portugal? My understanding is that it is exempted for the 10 years of NHR. But what about after that period? Will it only be taxed in the UK, or if not, how and at what rates is it taxed in Portugal?
I have a similar question for capital gains.

liveaboard

You need to talk to an tax expert, because this sort of thing often depends on your particular details; but as a general rule, property derived income is taxed in the country where the property is.
If that country does not tax that income, then Portugal will [when you are a resident of Portugal].

It's the same with capital gains. One country might exempt you from that tax for one reason or another, but now you have a second taxman standing by. You don't get taxed twice, but your chance of being exempt is reduced.

I recommend you talk to Denis Swing Green at Eurofinesco. This is his forte.

EU.flag

Rent is taxed in UK even if you move abroad. 2sec search on google found this:
https://www.gov.uk/tax-uk-income-liv...tax%20purposes.

NHR is not blanket exemption of all taxes, read its rules again.

Benjiman

Thanks for the lead liveaboard. I do understand UK rental income is always taxed in the UK. But since there's no personal allowance in Portugal, I'm wondering whether, once the NHR period is expired, there may also be tax due in Portugal on top of that?
I think the answer is yes - although there's a double taxation treaty, I've read you always pay the higher of the two countries' rates.

Pistolpete2

I have/had been pondering a permanent move to Portugal for the longest while but had decided that as I approach the age of seventy, the language was likely going to be too isolating for my taste and this along with tax issues, put the plans on hold - here is my two cents worth though.

I have ISAs in the UK and an investment portfolio in the UK and US and have UK property which I have never lived in but now plan to this autumn. I have UK State Pension and another State Pension from elsewhere - a tax haven as it happens.

For me, I understood that I would need to dispose of my UK (investment) residential property BEFORE I arrived in Portugal but after I left the UK to avoid ANY Capital Gains Tax but would need to be out of the UK for five full tax years to avoid any CGT there. Now that the UK is no longer in the EU, there are issues with selling a UK property and the timing thereof for Portuguese Tax even IF that property was the one you lived in.

ISAs are not recognised as tax free in Portugal so any gains there or in the rest of my portfolios would need to be realised BEFORE Portugal arrival as they are taxable there even under NHR.

IF I had kept my UK investment property, it would have been taxed in the UK only, under NHR - not exactly sure about afterwards.

The pensions are not in the main taxable in Portugal beyond a 10% charge introduced in April 2020 - that is even under NHR. They would not be taxed in the UK as a non-resident under the PT/UK Double Taxation Treaty.

IF I were to go ahead now and head to Portugal to settle it would be under a D7 Passive income visa and though I have a decent pension income and can show consistent investment income, I would likely show intent to purchase property so that the authorities can see that I can afford to stay. Affordability seems to be the only parameter, along with health insurance and a clean Police Record in the interim.

My father was UK domiciled so that means that the attraction of Inheritance Tax breaks from Portugal doesn't apply to me as a UK domicile, which I am now stuck with. As my will solicitor in the UK said - "you had better start spending it!"

All of this means that I have to consider not only the language but whether it is worthwhile moving my centre of gravity to Portugal (and becoming tax resident under NHR) as opposed to splitting time between the UK (or somewhere else) and Portugal such that I can still enjoy the life in the Algarve (etc) when it is best-suited and maybe? have access to the NHS and the future Global HIC as required by being in the UK for just over six months in each year.

My UK tax would be slightly less than Portugal tax under NHR if I move into my UK investment property, due to Capital Gains Tax reliefs and ISA reliefs, the Personal Allowance and Dividend and Interest reliefs. That 10% tax on pensions is what does it, even if I tax plan my investments to avoid Portugal CGT.

Since I am about to go seventy, I would be in a bit of a rush to get to Portugal before seventy when the best private health insurance deals seem to expire. However, if there, I would likely go with the State Healthcare System and purchase private through one-off surcharges as and when.

In this last overall weighing-up, I had to factor in what it would cost me in terms of annual expense and stress to complete my Portuguese Tax return, with support from somebody like Eurofinesco. I also had to consider whether I could indeed do an adequate lifestyle construct around the new 90 days in 180 stay rules as of January 1st, 2021. There has been discussion on here regarding the practicality of getting routine extensions to the 90 days stay allowance from time to time so that could also be considered.

So personally, still not ready to take the plunge yet.

Eurofinesco can indeed provide you with the finer details of the tax side in all of the issues raised above and more and even the move and visas.

It is relatively easy to file annual tax returns in the UK under self assessment and get the response to successful filing in a matter of days.

Doing it in a foreign-language-based system with a giant bureaucracy behind it and not knowing whether your filing is actually closed for several years is another matter and professional support can be wise, but it costs, even though fairly reasonable in the case of Eurofinesco.

HTH

Sorry but posts #3 and #4 above appeared while I was multi-tasking and drafting this sucker

liveaboard

I think not; I have foreign residential rental income that is not taxed in the country it's in, so I pay tax on that income in Portugal under Portuguese rules.
But; I was told if I can get a tax receipt from the source country, even if the number is zero, I would not have to pay tax on that income in Portugal.

That didn't happen.

So again, better to consult with experts about these things.

Benjiman

Ok thanks liveaboard, sounds like I need to do that

TonyJ1

Under the nhr rules, foreign rentals are not taxable - under double tax treaties (I have yet to see an exception), the source country has the right to tax rental income (as does the country of residence). The rules say that to be exempt from tax in Portugal it merely requires that the source country 'may' tax the rental income - there is no need for actual tax nor proof is required of any tax paid. If there is no double tax treaty, then the rules of the OECD model tax treaty apply - and these rules are similar to the above.

Of course, after 10 years, 'normal' tax rules apply - credit will be given up to the Portuguese tax charge - in this case proof maybe necessary. The taxpayer has the choice of being taxed at the specific rate for rental income, or 'general' tax rates - the election is made by the taxpayer.

I think it very unlikely that the foreign rental income would be tax free - would have to read the specific tax treaty - never seen one where there is this provision.

Andyj100

I think this is something you need advice on too. If you are "qualifying" non-resident when you sell you only pay CGT on the post 2015 gains, so you need to be non UK resident when you sell. My advisor assisted in drafting a letter with my tax return preceding the sale of my London flat, and then with the calculation that showed the 2015-2019 gain was less than the CGT allowance when the sale went through. I left the UK in 2018, 18 months prior to the sale. If you have lived in the flat you get credits proportionate to the months live in divided by the months owned. I've highlighted "qualified" as you need to be out of the UK for 4-5 years, but not necessarily all prior to the sale. I have not looked into exactly how that calculation works as I'm told it is complex, but to assume 5 years. (I will be happy to give the name of my advisor).

In Brazil, where I live now, I declared the asset value when I arrived, and the fact that is now in cash is neither here nor there to the Brazilian authorities.I assume Portugal will also only be interested in the gain between date of arrival and date of sale.

I'd be interested to know how you get on with the passive income requirements for a D7 as I am 53 and I will eventually have a UK state pension, US Social Security, a QROPS, a UK private pension, a tiny UK DB pension and an ISA. I'm planning to consolidate as much as that as possible offshore when I'm 55 and prior to any move. I get the impression the minimum income requirement would need to be investment income rather than draw-down, but I'm not ready to move yet and see how that works.

Fluffyhead

We have 2 flats rented out in the UK. We declare the income on them to both the Inland Revenue and the IRS. Any tax we paid in the UK is then put on the pt tax return. Since the UK gave a larger allowance for dividend receipts and the huge personal allowance in the UK we have not had to pay tax in the UK for several years. Portugal taxes worldwide income so I believe we are doing the right thing in putting the rental income on the pt return. The only difficulty is dealing with the different tax years.

Lou71

Our lawyer told us that we must continue to pay tax on our UK rental income in the UK but then declare it to the Portuguese tax authorities every year.

I asked if, once the NHR expires, we have to pay a top up tax in Portugal because the personal allowance is lower and the rate of income tax is higher. She said not because of the double taxation treaty.

I will still check this with a tax specialist when the time comes but from what I have read, it would appear than she is correct and there is no top up tax payable in Portugal on rental income earned and declared in the UK.

I stand to be corrected.

Pistolpete2

Yep sorry I forgot that no matter what, as a non-resident, I would still be liable for UK CGT on any apportioned or calculated gains post-April 6, 2015 if it remained as a purely investment property. I had a valuation done (actually two) at that date for any potential disposal calculation.

TonyJ1

This is correct - but if with the 'non habitual residency' status - then not taxable in Portugal. The tax authority has issue a ruling on this - see 'processo 4217/17

TonyJ1

Your lawyer needs to reread the double tax treaty - the rent is taxable in Portugal. The treaty does not provide that the source country has exclusive taxing rights - compare the respective article to the article for civil pensions (government pensions) - though credit will be given for taxes charged on the rental income in the source country (up to the Portuguese tax charge)

Benjiman

Thanks Tony, you have confirmed what I had thought to be the case. That means that at the end of one's NHR period, there could be a substantial change in tax bill. You may not pay tax on the personal allowance in the UK, but that rental income will become taxable in Portugal. And at higher rates too, as Lou has pointed out. For me that will be a major change, something I need to plan for.