UK Investments: How to be tax efficient in Portugal

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If you are a UK expat in Portugal and have retained investments or savings in the UK, you need to consider how tax efficient your current strategy is. Once you become a resident of Portugal, interest and dividends can be subject to Portuguese tax. If you have NHR status (non-habitual resident) however, there are significant tax benefits. For instance, income derived from UK bank interest and dividends are taxable in the UK but not in Portugal for non-habitual residents.

Blevins Franks provides expert cross-border tax planning and wealth management advice for UK expats in Portugal. Their advice is tailored to your particular circumstances and can save you money while ensuring you are compliant with all local obligations. 
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Optimising Tax Efficiency for UK Investments in Portugal
By Adrian Hook, Partner, Blevins Franks

Many British expatriates living in Portugal maintain savings and investments from the UK. While this inclination is understandable, you should review whether your assets are structured in the most tax-efficient way for your life in Portugal.
 
Tax Implications of Premium Bonds and ISAs in Portugal
Once you become a resident of Portugal, any gains you receive from Premium Bonds will be subject to taxation, allowing the Portuguese authorities to share in your good fortune.
Similarly, the interest and dividends earned from your Individual Savings Accounts (ISAs) will also be subject to Portuguese taxation, and as a non-UK resident, you are no longer eligible to make new deposits into ISAs.
Investment income is typically taxed at a flat rate of 28%. However, you can choose the scale rates if they prove more advantageous. Under the scale rates, your investment income is combined with your other earnings for the year and the tax is applied at progressive rates. These range from 14.5% for income up to €7,479 to 48% for income exceeding €78,834.
 
Taxation of Bank Interest for Portuguese Residents
While it is true that bank interest in the UK remains tax-free under a certain threshold for UK residents, understand that Portuguese residents are subject to taxation on such earnings – taxed as investment income at a flat rate of 28% or, according to the scale income tax rates.
Considering the increase in the cost of living, UK savings accounts cannot keep pace with inflation. Therefore, exploring alternative financial structures is imperative to ensure your money is working effectively for you. By considering alternative investment avenues, you can potentially maximise your returns and safeguard your wealth against the eroding effects of inflation.
 
Tax Considerations for UK Shares, Securities, and Bonds in Portugal
UK investments such as life assurance bonds, unit trusts, and open-ended investment company (OEIC) funds often provide tax relief and other advantages while you are a UK resident. However, once you become a resident of Portugal, these investments undergo a change in taxation treatment.

In Portugal, investments such as these are subject to a flat tax rate of 28% as well as Portuguese capital gains tax upon their sale. Certain capital gains are combined with other income for the year and taxed at the applicable Portuguese income tax rate. Although, inflation relief is available after a two-year holding period.
 
Tax Advantages for Non-Habitual Residents in Portugal
If you meet the criteria for Non-Habitual Resident (NHR) status, you can enjoy significant tax benefits. Certain foreign income and gains that may be subject to taxation in their source country, as per tax treaty rules, are exempt from Portuguese taxation.

For instance, income streams derived from UK bank interest and dividends are taxable in the UK but do not attract Portuguese taxes for non-habitual residents. This holds true even if the income is not actually taxed in the UK due to 'disregarded income' rules.
Understanding and leveraging the tax advantages available through the NHR regime can significantly enhance your financial position as a resident in Portugal, allowing you to make the most of your foreign income and investments while minimising your tax obligations.
 
Exploring Tax-Efficient Investment Structures in Portugal
When NHR has ended, residents of Portugal still have access to other highly tax-efficient investment opportunities.

One popular approach among expatriates is to hold capital within a structure similar to an offshore life assurance policy or bond – an investment wrapper for a conventional portfolio. A key benefit of this structure is that no tax is payable on the underlying investment income until a withdrawal is made. Even then, only a portion of the profit is subject to taxation in Portugal, and what's more, the effective tax rate decreases over time.

To ensure the best possible outcome, consult with a knowledgeable adviser who can provide cross-border guidance on UK and Portuguese taxation. This will help you navigate the complexities of these tax systems, understand the interaction between them, and identify tax planning opportunities tailored to your unique circumstances.
 
Considerations Beyond Tax: Optimizing Your Savings and Investments
While tax efficiency is important when reviewing your savings and investments, there are other important considerations as well.

UK-based advisers can no longer provide regulated financial services to EU residents through the EU 'passporting' system. Assess whether your adviser can continue to provide guidance and execute investment instructions, or if there are any limitations to their services.

Evaluating your options can lead to profitable outcomes and ensure your financial affairs are optimised to align with the Portuguese framework. Therefore, it is prudent to not only focus on tax implications but also consider the broader factors that impact the performance and suitability of your investments.

The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
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This article was originally published by Belvins Franks