NSG666

Hi, I'm new here so please bear with and correct me if I am asking too many questions in this one post. As well as trawling the internet I've spent some time looking around the forum for answers but I just end up getting more confused.

My wife and I are 57 and have both retired early and have no intention to work again. We have lived in the UK all of our lives and still do but we are hoping to sell up and permanently move to (be in) Portugal between mid-July 2022 to the year end. As soon as we are in the 2022/23 UK tax year we plan to take UFPLS's which, between the 25% tax free element and the UK personal allowance, will not be taxed in the UK whether we leave or not. We will qualify as tax resident in the UK for the 2022/23 tax year but will also become tax resident in Portugal for their/your 2022 tax year. From leaving the UK to year-end we will not take further pension or other income but will live on the UFPLS's and savings. I understand there is such a thing as a split tax year but I'm not sure how tax liabilities fall in practice.

Can anyone confirm whether we would have to pay tax on the UFPLS in Portugal?

If we took 25% tax free (UK) lumps sums before leaving the UK would they be taxed in Portugal?

Does NHR affect this and when should we apply?

On another thread I read something about a tax-fee amount on pension income but I've not come across this in anything else that I have read including Blevin Franks's guide. Are there any tax-free allowances in Portugal?

Many thanks

wellinever

Yes, its e4100pa......as i understand it, you still use the tax rate for the whole income, but take away the first e4100, so n big deal as you still fall into a higher rate

dingg

If you take the 25% tax free before becoming resident in Portugal, it cannot be taxed by Portugal

Once you have Portuguese residency you can apply for nhr which now taxes any pension income at 10% for 10 years, apart from some government pensions, such as police, forces etc.

There's some rules for the application for nhr and it must be done by end of March following residency take up.

Hth

Ps its quite easy to apply yourselves once you have access to the financas dept portal

​​​​​​Pps your tax liability falls on Portugal once you become resident here and have severed ties to the UK basically, if you have complex affairs it could be that you would need to consult a tax advisor

Alan PT

Lump sum is tax free in the UK but is potentially taxable in Portugal, if it is from a private pension (public service pensions are only taxable in the UK)

I think you really need to get advice from a Portuguese accountant to be certain about whether you escape this tax liability by taking the payment before you officially declare residence in Portugal. It sounds logical, but tax isn't always logical...

You should definitely apply for NHR and this will reduce the tax on future pension payments to a flat rate of 10%, for the next 10 years (again, assuming they are private pensions). You can only apply once you are resident, but it applies for the whole tax year. This used to be 0% and that's probably what you read about as being a tax free amount on pension income.

There are a lot of possible allowances in PT, but they are a bit complicated to explain quickly - key point is that they are nowhere near as generous as the UK tax free band. It's worth buying the Blevins Franks book, as it goes into a lot more detail than the free download: https://www.blevinsfranks.com/produc...g-in-portugal/

BTW, I assume you have visas sorted out already? You'll need to do that before coming to Portugal now (check out some of the threads on this)

Alan PT

I thought this, but wasn't certain and couldn't quickly see a reference to quote - if you have an official reference that might be useful for OP

dingg

No official reference, but I did it, no issues as long as its done whilst still UK resident and before taking residency in Portugal and before registering with financas dept here

Alan PT

I'm a bit cautious on this as it didn't matter before - NHR gave you a 0% rate on private pensions, so there was no tax liability.

Here Tax residency it's said that tax was charged for the whole year, not just the resident portion

NSG666

Thanks wellinever I think it was on a thread of yours or one that you had commented on where I came across this 4100e allowance and from memory you had got it from a tax specialist? It was just that I'd never seen mention of it in anything to do with pension taxation that I've read elsewhere. Can I ask if you can confirm where this info came from?

NSG666

Thanks Alan and dingg I'd read that thread and I think that's what set alarm bells ringing.
I agree that I need to speak with a Portuguese tax specialist but reading some other threads it seems that even paid for advice from such specialists can result in conflicting info.
I have bought the B&F Guide to Living in Portugal 2021 version but was disappointed with the NHR section on pensions as one section correctly said that it would be taxed at 10% then the next section suggested that it would not be taxed in either the UK or Portugal. Also, despite reading the book from cover to cover, I didn't know there are tax implications regarding income from stocks and shares ISAs (a fairly common UK investment) and I might need to switch out of them before leaving the UK to avoid paying tax on them.

Alan PT

Very generally, I'd say that UK tax legislation is hugely complex, but if you have enough time and brainpower you will find a definitive answer. Portugal is much simpler, but some things are more subjective and open to interpretation. Sometimes it's down to how conservative the advisor is - do they go for an approach that they know is 100% safe, or do they suggest something that is probably OK, but might be challenged by Financas?

The NHR tax rate only changed in 2021, so probably they missed updating that bit in the BF book. The other things worth reading are some of the docs here: https://www.eurofinesco.com/library/

You can retain your UK ISAs and they will remain free of UK tax, but will be taxable in Portugal, so it's debatable how useful they are. Some dividends (not the capital gains though) from investments held outside Portugal are free of tax under NHR, but that seemed like stress and complexity for a minimal gain to me

dingg

Wellinever does appear to have lots of issues with the financas dept 👀

NSG666

I can't edit my previous reply now but since posting it I've done some digging on Google and the only reference to it is on Expatica but the way I read it is that it's not a tax free amount available to everyone it's just that if you only earn upto 4100 in a tax year then it is exempt. If it were a tax free amount then it would mean the income tax bands/cumulative tax are all wrong.