wellinever

Many Expat Brits will at some time sell up in PT and return to the UK, many of whom will have been in PT before Brexit in 2020 and are in PT with protected rights.....one exception to this, is the right to make a reinvestment in a main residence in UK, thus reducing what can be very high Taxes on any capital gain, especially after such huge increases in property values, which are unlikely to go down. It would be different for those that became residents from Jan 2021 as the rules WA rules no longer applied.
What are peoples thoughts on this??

Red Eric

It was the Will of The People.

Not much that can be done about that, apparently.

I suppose you could take heart fom the fact that very few people now seem to think leaving the EU was a good idea and hope that the weight of public opinion persuades both the major parties to change their stance on re-joining. Have you got another 20 years in you?

Mind you, even with the re-investment exemption, it was always going to be difficult for the double-homer to get around the PT CGT.

I suppose you could just stump up the fairly modest CGT on what you say are huge gains generated by things well beyond what you have spent on your property.

What happened to "it's totally unfair for non-residents having to pay tax on 100% of the gain" by the way?

wellinever

You mean inflation, cause thats the only thing that has happened, here just as in the UK. The PT Gov must be laughing all the way to the bank, esp as prices have increased so much (at least in the Algarve) the extra IMT, as well as CGT.
The reinvestment worked perfectly well while UK was in the EU, I did exactly that back in 2009. That was the same year that the law was changed in PT, under pressure from a Dutchman through Euro Courts, to stop Portugal only allowing reinvestment in Portugal Mainland....
It is now correct that non residents have the same tax applied as PT residents, but the difference is not so much...
eg Capital gain of e300,000 at 28% = e84,000tax
Capital gain of e300,000/2 = e150,000 taxed at 48% = 72,000-9000 = e63,000.

But that was not the point of the post, which was that I thought the WA was designed to keep the status quo for people already resident in Portugal, which was that could reinvest in the UK (accepted that prior to Brexit it was part of the EU). The fact that UK left the EU IMO makes no difference, and that reinvestment, if required, back in the UK should be allowed for those in PT under the WA rules. It is not possible for a UK PT resident to make a reinvestment in another EU country, as you would have to take out residency in that country for it to be classed as a Main home, and regulations are so much more costly in other countries.
Whilst of no consequence to this question, of course a PT national, resident in UK, and owning a property there, will pay Zero capital gain tax in the UK,(under PPR) and non in PT if they are not tax resident.in PT.

Red Eric

House price inflation, yes. That runs at a somewhat different rate from general inflation and is, of course, to a large extent influenced by government policy in various sectors, so maybe taking a small cut of the profit is perfectly justifiable.

Maybe, in the light of these other judgements about CGT for non-residents being a restriction on movement of capital and that being applied across the entire world as opposed to only within the EU, the reinvestment area restriction might be revised I wonder if anybody has ever tried mounting a legal challenge to it?

Whaa?? You get to keep a full 79% of the whopping great sum you didn't have to lift a finger to accrue! That's exceptionally generous. Much more so than earning a living through work. I think I might drop a note into the suggestion box to advise they have another look at that.

Nope. The WA did not guarantee that absolutely everything remained unchanged for those who'd previously exercised FoM rights. It has limited scope and the items in it were negotiated and agreed by both parties.

What about Ireland? You'd be free to go there without any hassle and it's in the EU.

On the other hand, a PT national resident in PT, selling his PPR to move abroad would not be exempt from CGT unless reinvesting the sale proceeds within the EEA.

wellinever

Hi Eric

Red Eric

False comparison. You're introducing a principle of unequal treatment here but both PT and UK are perfectly consistent with regard to how a gain is taxed. There is no such discrimination in Portugal on grounds of nationality.

Red Eric

I can think of a couple off the top of my head without any serious effort.

The (devastating) changes to laws on tenant protections under the PSD / CDS-PP coalition, the low barriers to immigration and the fiscal incentives for doing so, along with a lack of action on creating conditions for affordable housing plus failing to properly regulate the AL sector, all of which have contributed to the housing market - both ownership and rental - overheating at a rate far faster than wage increases.

Pulaski

I was thinking exactly the same thing, and had gone through, in my head, that swapping UK for PT and vice versa made total sense.

I am also confused as to what point Wellinever is trying to make. .... If someone is planning for an eventual return to the UK late in life, then there is nothing to stop them buying a home in the UK (there'll be a stamp duty surcharge if they own a home anywhere else in the world, but Wellinever didn't mention that), and the only point at which CGT would become an issue is when they sell the property. But if the owner is returning to the UK "late in life", how likely are they to sell it before they die? On death their heirs will inherit the home at current market value, so CGT at the time of inheritance would be zero anyway.

All that said, buying a home but not living in it, is a pretty terrible investment - it generates no income (assuming you're not going to rent it out), but incurs taxes and insurance costs, requires at least some untilies to be paid for, and requires ongoing maintence (in most cases) at very least mowing, weeding, and pruning. And home insurance may be an issue as typical home insurance policies require that the property is not left vacant for more than 30 days at a time. The thing that someone contemplating buying the second home is likley to overlook, if they're doing so with cash (not needing a mortgage), is the investment income forgone by "investing" in an unproductive asset. If you have say £250,000 to buy a home then even conservative investments should be generating 5% (£12,500 in year one) compound returns, which on £250,000 would total £85,000 after five years, which you should compare against the market price of a home less accumulated taxes, insurance, utility costs, maintenance and repairs, probably around £4,000/yr. Even in times of fairly rapid home price inflation, you are likely to do as well with a portfolio of shares and/or unit trusts as you are in "investing" in a home left standing vacant.

wellinever

Hi Pulaski.....Please read the OP. I was merely asking for peoples views on the principle that something, potentially, very important to anyone (not just Brits), resident in PT, under WA rules when selling their main home in PT, who decide to sell up and return to the UK, has been lost post Brexit, and suggesting that that was unfair, given that they could have done so prior to Brexit.
Portugal is one of a few countries in the EU that tax ANY increase in value of ones Principle residence.(France, zero capital gain tax, Spain, zero capital gain tax ,if owner is over 65 yrs old and owned the property for 3 years or more, Italy, zero capital gain tax on sale of main home for all residents).
So you can see this has nothing to do with Brexit, each country has its own tax regulations, including tax of capital gain from sale of Principle Residence, just Portugal stands as the odd one out (but nothing new to PT tax rules).
EG.. Portugal, up until 2009, would not even allow reinvestment anywhere outside of Portugal, to be taken into account regarding Capital Gain on sale of property. They only moved their goalposts when `Told` to do so by their Lords and Masers, the EU commission.....on the grounds of `restriction of movement of Capital`

This has nothing to do with second or holiday homes. This is simply, if you like, part of the contract of becoming resident in PT, and the continuation of that right considering a residents position in PT did not actually change
You are correct Pulaski, in that if a PT property owning PT resident dies, that property can be inherited by immediate family free of taxes at the time. That however will not be the case for a lot of Brits, who when confronted with it, may prefer to go back to the UK. But at this point,( unless PT property price increases outstrip that of the UK), with current rules, reinvestment will be hard for many, having lost a considerable amount of funds to PT AT.

Regarding `Red`s` comment about unearned income, maybe he misses the point. (or simply ignores it) .
A house is a house, any increase in its value is not income, it can only be classed as income if it is used to buy anything other than another property to actually live in as a main home. That principle should be the worldwide standard.
Otherwise how can it be fair that the same asset, can be inherited `tax free` by an immediate family member on death of the final owner?

Red Eric

Hmmm..... that's all a bit of a muddle, which essentially boils down to a) EU member states have a fairly free hand when it comes to taxation, unless they are somehow deemed to have offended the rules of free movement of capital and b) what was in the WA wasn't a comprehensive preservation of exactly the status quo in every tiny detail (and as you yourself are now pointing out that the change to your options is nothing to do with Brexit , it's difficult to see how you think that could have been covered by the WA).

Anyway, correct me if I'm wrong but your own situation is that you already have a home in each country, with the PT one being designated your primary residence for the convenience it affords you in going back and forth as often as you wish. What you want to be able to do when you've had enough of that is to sell the PT property and walk away with the full gain, which you'd be happy to do via an intermediate investment in another principal residence in the UK, before flogging that at 0% CGT and prsumably occupying the other of your UK properties. Is that a fair summary?

wellinever

Well it may be considered a` muddle` to someone that never intends to return to UK nor owns a property in PT, but it is something that `could` affect anyone that may want to return to UK in the future.. ....But never say never........
My personal situation has little to do with the OP. The `unfairness`now exists, regardless of my situation.
Anyone in a similar position can already do what you are suggesting I want to do, without returning to UK, or paying any tax on the proceeds of a PT sale, in either country.
It might take 2 years to achieve, but that is available to anyone that wants to wait, or plan ahead.
But some will not have that benefit, and will need to act more urgently.

I have never said I would not more CGT in Portugal, but I, like any sensible person, would prefer not to, or if I have to, then to pay as little as legally required, at the time.
I actually think the way it works in Portugal, is in fact a fairer system than in the UK. (Such that any gain not reinvested from a main home should be taxed at some rate). That gives an equity with those that never own their own home. Maybe that will change in the UK at some future date..)
All I am suggesting is that it would be no big deal for PT AT to allow any Brit, tax resident,(max 30K) property owners, in PT prior to Dec 2020, to keep the the status quo that existed before Brexit.
That would not seem to me, to be a unreasonable proposal.