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Portuguese taxation of UK rental income

Portuguese taxation of UK rental income

Old Jan 22nd 2021, 1:14 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by 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.
As rates and legislation stands - 28% on rental income maximum. Post 10 years split between UK and Portugal. Taking a longer term view, I am of the opinion that the 28% will likely go up.
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Old Jan 22nd 2021, 1:17 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by TonyJ1
As rates and legislation stands - 28% on rental income maximum. Post 10 years split between UK and Portugal. Taking a longer term view, I am of the opinion that the 28% will likely go up.
Yes 28%. Or you can elect to pay at income tax rates if that's better for you?
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Old Jan 22nd 2021, 1:28 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by Benjiman
Yes 28%. Or you can elect to pay at income tax rates if that's better for you?
When you submit the tax return you can elect that the rental income is added to other income and be taxed as tax tables, or else 28%. In both cases taxes paid abroad is deductible (up to Portuguese tax charge)
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Old Jan 22nd 2021, 5:53 pm
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Default Re: Portuguese taxation of UK rental income

That's great Tony, thanks for explaining
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Old Jan 24th 2021, 11:55 am
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Default Re: Portuguese taxation of UK rental income

Thanks also from me TonyJ1 for confirming I haven't been paying pt tax erroneously for years!
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Old Jan 26th 2021, 12:40 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by 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.
I agree. This is how it works!
If according to the tax treaty the other country MAY tax the rental income, this income is tax free under RNH. This is the case in most tax treaties (based on OECD model).
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Old Jan 26th 2021, 10:42 pm
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Default Re: Portuguese taxation of UK rental income

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.
I was looking into UK CGT last year and saw a statement about the 5 year absence no longer being valid.
It wasn't relevant to my circumstances so I didn't look at the details.
If you were considering using that rule it might be advisable to research if it has been changed.

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Old Jan 27th 2021, 11:39 am
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Default Re: Portuguese taxation of UK rental income

Originally Posted by ricko
I was looking into UK CGT last year and saw a statement about the 5 year absence no longer being valid.
It wasn't relevant to my circumstances so I didn't look at the details.
If you were considering using that rule it might be advisable to research if it has been changed.
The double tax treaty provides that the country where the property is situated may tax such property on a disposal. The non habitual residency rules provide that if the other country has the right to tax, then it will not be subject to tax in Portugal. A tax ruling has been published by the tax authority with this conclusion.
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Old Jan 28th 2021, 10:47 am
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Default Re: Portuguese taxation of UK rental income

For clarification on some of these tax rules (im simple minded)....If a Portugeese resident ,rented his uk house for 10,000 a year then the uk government has the right to tax this but as it is below the 12,500 (approx) tax threshold, no uk tax would be paid if that was the only world wide source of income.
Q. The Portugeese tax threshold is (approx) £4000 , so will they ask for tax on the £6000 and Q2.does nhr affect this?
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Old Jan 28th 2021, 1:12 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by atlasthemonk
Q. The Portugeese tax threshold is (approx) £4000 , so will they ask for tax on the £6000
That figure of 4,104 to which I assume you're referring only applies to employment and pension income - it's not a general threshold as such.


...and Q2.does nhr affect this?
As per TonyJ1's previous post, you wouldn't pay PT tax for the period you have NHR status.
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Old Jan 28th 2021, 4:05 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by TonyJ1
The double tax treaty provides that the country where the property is situated may tax such property on a disposal. The non habitual residency rules provide that if the other country has the right to tax, then it will not be subject to tax in Portugal. A tax ruling has been published by the tax authority with this conclusion.
I'm not sure if we are talking about the same thing?
I was only considering CGT payable to the UK, and the suggestion that it would still be payable even if absent from the UK for more than 5 years.
Another post perhaps sheds more light on this:

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.
This suggests to me that if the property to be sold was purely for investment (ie the owner had never lived there) then CGT would be payable in the UK , even if the owner was absent from the UK for more than 5 years?

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Old Jan 28th 2021, 4:46 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by ricko
This suggests to me that if the property to be sold was purely for investment (ie the owner had never lived there) then CGT would be payable in the UK , even if the owner was absent from the UK for more than 5 years?
yes, but only on the post 2015 gain. The law changed in 2015 to apply CGT to non-residents. The pre-2015 gain is covered by the law before that, when you need to be a "qualifying non-resident". I was surprised that I could qualify having only been non-resident for a year when I sold....but I suppose I am now a tax exile.
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Old Jan 29th 2021, 9:34 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by Andyj100
yes, but only on the post 2015 gain. The law changed in 2015 to apply CGT to non-residents. The pre-2015 gain is covered by the law before that, when you need to be a "qualifying non-resident". I was surprised that I could qualify having only been non-resident for a year when I sold....but I suppose I am now a tax exile.
Does this mean, then, that if you rented your UK home when you moved abroad, after five years you could sell your house and not be liable for UK CGT?
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Old Jan 30th 2021, 12:25 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by atlasthemonk
For clarification on some of these tax rules (im simple minded)....If a Portugeese resident ,rented his uk house for 10,000 a year then the uk government has the right to tax this but as it is below the 12,500 (approx) tax threshold, no uk tax would be paid if that was the only world wide source of income.
Q. The Portugeese tax threshold is (approx) £4000 , so will they ask for tax on the £6000 and Q2.does nhr affect this?
Just looking at rules regarding non resident and tax allowance
https://www.gov.uk/tax-uk-income-liv...onal-allowance

Not sure what the rules are now that UK is not in the EU

Last edited by wellinever; Jan 30th 2021 at 12:28 pm.
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Old Jan 30th 2021, 5:33 pm
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Default Re: Portuguese taxation of UK rental income

Originally Posted by ricko
Does this mean, then, that if you rented your UK home when you moved abroad, after five years you could sell your house and not be liable for UK CGT?
Back in the day, yes, but not now.

I bought the house in 1993. I moved aboard in 1999 and back to the UK in 2013, when I lived in my house. I left again in 2018. I sold the house in 2019.

The gain up until 2015 is not liable to CGT as I was non-resident when I sold, and remain so. The gain in the period 2015-2019 was subject to CGT. I was living in the house for most of that time, so received credit for that, and anyway, the 2015-2019 gain was not huge. If there had been big gain, I would have paid CGT within 30 days of selling, whatever my current residency status. You do got the full CGT allowance as a non-resident.

I now have to remain out of the UK for around 5 years, otherwise I get clobbered by CGT.

If you want to move to Portugal tomorrow and rent your UK house, you probably be advised to try and figure out a value for the property as of 4 April 2015. As mine was one of a number of similar properties, HMRC accepted an interpolation of similar properties sold in the year preceding and following.

If you love Portugal and in a few years sell the UK house, you will then pay CGT on a proportion of the post-2015 gain, the proportion being roughly months rented/months owned during that period.

If you don't like Portugal and move back to the UK, sell up, and buy a retirement home, you would pay CGT for a proportion of the gain over whole period of ownership, roughly in a proportion of months rented/months owned.

NB I'm no sort of tax expert, this is just my understanding of how it works. I did pay for advice to make sure I did everything correctly.

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