Moving to Portugal is an exciting prospect, offering a sunnier climate, a rich culture, and a relaxed way of life. As a UK expatriate, there are unique challenges and opportunities that require careful and strategic financial planning.
This guide is designed to provide you with a comprehensive overview of the key financial complexities of UK expat relocation. A clear strategy designed and implemented with careful consideration equals your new life without unnecessary financial stress.
Understanding your position in Portugal
For UK nationals with no access to the Schengen Area, you will need to apply for a specific short-stay visa as a preliminary step before moving towards your new life in Portugal as a tax resident.
Typically, you are considered a tax resident if you spend more than 183 days in the country within any 12-month period. Alternatively, even if you spend less time there, you may still be regarded as a tax resident if you have a permanent home in Portugal that serves as your main residence. This classification can also apply under the ‘centre of vital interests’ test.
Once you become a Portuguese tax resident, you are liable for Portuguese tax on your worldwide income and gains on an arising basis. This is a key difference from the UK system, with important implications for your pensions, investments, and other assets. It is vital to get this right from the beginning to ensure compliance and to benefit from any available reliefs.
Navigating the tax landscape
The popular Non-Habitual Resident (NHR) regime, which provided significant tax benefits, was closed to new applicants from 1 January 2024. While those already registered can continue to benefit during their 10-year term, newcomers must now follow the standard Portuguese tax system.
Understanding the standard Portuguese tax rates is now essential. Income is taxed at progressive rates, while certain investment income might benefit from a flat rate. Seeking professional advice is crucial to understanding how your specific income sources will be treated and to exploring any remaining avenues for tax efficiency under the current rules.
Cross-border taxation
The UK and Portugal have a Double Taxation Agreement (DTA) aimed at preventing you from being taxed on the same income in both countries. The treaty specifies which country has the primary taxing rights for different types of income, such as pensions, dividends, and rental income. For example, UK government service pensions are generally only taxable in the UK.
For other income, you will generally declare it in Portugal and claim a credit for any tax paid in the UK. Some income may be eligible for relief at source, where tax is not deducted in the UK, while other situations may require you to reclaim tax that has been withheld. Correctly navigating the DTA is essential for tax efficiency and compliance.
UK pensions
Your UK pensions are among your most valuable assets. If you have a Defined Contribution (DC) pension, you can choose flexible options like drawdown or buying an annuity. The removal of the UK’s Lifetime Allowance (LTA) has made some aspects simpler, but cross-border issues still exist. For Defined Benefit (DB) schemes, you will get a secure income, but currency fluctuations between sterling and euros can directly affect your spending power.
Transferring your pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) based in the EU can provide benefits, such as consolidating funds and reducing currency risk by holding assets in euros. However, this is a complex decision that may not be suitable for everyone. You also need to consider sequencing risk—the risk of poor investment returns in the early years of retirement, and rules like the Money Purchase Annual Allowance (MPAA) in the UK, which can limit future contributions if you access your pension flexibly.
UK State Pension
As a UK national living in Portugal, you can still claim your UK State Pension. Payments can be made to a bank account in the UK or Portugal. If paid into a UK account, it continues to be uprated annually under the ‘triple lock’ policy. However, the value of these payments in euros will fluctuate in relation to the GBP/EUR exchange rate.
Before you retire, it’s wise to review your National Insurance record for any gaps that could reduce your entitlement. You might be able to make voluntary contributions to fill these gaps and secure the full State Pension. The process of claiming from abroad is straightforward but should be started a few months before reaching State Pension age.
Structuring your investments for a life in euros
Your investment strategy must adapt to your new life. Since your daily living costs will be in euros, your portfolio should reflect this. Holding a significant portion of your investments in euro-denominated assets helps reduce the currency risk associated with converting sterling to meet your expenses. A globally diversified portfolio remains the foundation of good planning, spreading risk across different asset classes and regions.
Regularly rebalancing your portfolio helps keep your asset allocation in line with your risk tolerance and financial goals.
Reviewing your UK savings wrappers
UK tax-efficient savings vehicles like Individual Savings Accounts (ISAs) lose their tax-free status once you become a Portuguese tax resident. Any income or capital gains generated within an ISA will be subject to Portuguese tax. It is vital to understand the reporting requirements and tax treatment for these accounts.
Furthermore, investments in UK-based funds require careful review. Portugal has specific rules concerning ‘reporting’ versus ‘non-reporting’ funds. Gains from non-reporting funds may be treated as income and taxed at higher progressive rates rather than the more advantageous capital gains rate. Restructuring your portfolio to include compliant reporting funds is often a priority.
UK savings
UK tax-efficient savings vehicles like Individual Savings Accounts (ISAs) lose their tax-free status once you become a Portuguese tax resident. Any income or capital gains generated within an ISA will be subject to Portuguese tax. It is vital to understand the reporting requirements and tax treatment for these accounts.
Furthermore, investments held in UK-based funds require careful review. Portugal has specific rules concerning ‘reporting’ versus ‘non-reporting’ funds. Gains from non-reporting funds may be treated as income and taxed at higher progressive rates rather than the more advantageous capital gains rate. Restructuring your portfolio to include compliant, reporting funds is often a priority.
Planning for property ownership
Many expats will face decisions about property, whether it involves keeping a home in the UK or purchasing one in Portugal. If you rent out your UK property, the rental income is taxable in the UK first and must also be declared in Portugal, where you can claim a tax credit. Selling a former main residence can also have capital gains tax implications in both countries.
Buying a property in Portugal involves various taxes, including stamp duty and an annual property tax called IMI. For high-value properties, there might also be an extra wealth tax known as AIMI. Knowing these costs is vital for budgeting and long-term financial planning.
Protecting your health and wealth
UK pensioners receiving a State Pension can often use an S1 form to access the Portuguese healthcare system (SNS) on the same terms as local residents. For early retirees or those without an S1, private health insurance is necessary to cover medical expenses.
Apart from healthcare, it is crucial to review your life insurance and income protection policies to ensure they provide cover in Portugal. Estate planning is also essential, as Portugal’s succession law includes ‘forced heirship’ rules, which require a significant part of your estate to pass to direct family members. This contrasts with the UK’s testamentary freedom, making a Portuguese Will or suitable legal structures vital to ensure your wishes are respected.
Planning daily finances to mitigate currency risk
Practical banking arrangements are essential for a smooth transition. Opening a Portuguese bank account and obtaining a NIF (tax identification number) are among the initial steps you should undertake. For managing income and payments between the UK and Portugal, multi-currency accounts can be highly beneficial, helping to minimise foreign exchange (FX) fees.
Creating a clear cash flow system that matches your sterling income, such as pensions, with your euro expenses is essential. Automated transfers and prudent cash buffers can help handle currency fluctuations and ensure you always have funds available where needed.
Staying up to date
As a Portuguese tax resident, you are required to submit an annual tax return. This includes reporting foreign bank accounts under the Common Reporting Standard (CRS). Staying organised and maintaining accurate records throughout the year will make this process much easier.
Financial rules and tax laws are not fixed; they evolve over time. Regularly reviewing your financial plan with RZ Financial Planning is essential, not optional. An annual review ensures your strategy remains aligned with your goals, complies with current legislation, and is tailored to your circumstances. This proactive approach is the most effective way to safeguard your financial future in Portugal.
Navigating your finances as an expat requires specialist knowledge and careful planning. If you would like personalised guidance on your move to Portugal or a review of your existing arrangements, please contact us at RZ Financial Planning.
Why choose RZ Financial Planning?
At RZ Financial Planning, we provide bespoke wealth management and private office services designed for UK expatriate individuals and families interested in relocating to Portugal. Founded by Raoul Ruiz Martinez, our firm is built on a foundation of trust, discretion, and a profound commitment to our clients’ legacies.
Built for Portugal. Connected to Europe
We address a crucial need for financial guidance that blends deep local Portuguese insight with a sophisticated global perspective. Whether your assets are under €1m, between €1m and €10m, or exceed €10m, we help you navigate the optimal platforms to align your tax and investment strategies. Our extensive European network ensures you receive a service defined by freedom, simplicity, and excellence.
Your Private Office
Functioning as your dedicated private office, we provide a single, trusted point of contact for your financial world. We manage complexity so you can focus on what truly matters. We are not just advisors; we are long-term partners, dedicated to protecting and enhancing your wealth for generations to come.
Contact us – Email: hello@rzfinancialplanning.com – to provide the clarity and support you need to build a secure financial future in Portugal.
