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 Ker
(@ker)
Active Member Premium Member
Joined: 2 months ago
Posts: 8
13/06/2020 6:22 pm  

Hi all,

we are trying to piece together a plan and wanted to pass it by you all to see if anyone can see the flaws or can give it the thumbs up.

We plan to rent out our UK home and then motorhome down to Portugal in September, essentially to look for a place to rent. With this rental secured, we then wish to apply for Portuguese residency a few weeks before the 31st December 'cut-off' for UK citizens as EU members. Furthermore, we would swap our UK driving licences for Portuguese ones, again to avoid having to re-sit a driving test in two years.

We have investments in shares that will mature in a couple of years and so do not wish to sell any until then, hence the idea of renting for a year or two before buying. In the meantime, there will be an income from one state pension and the rental of the UK property.

One question I have is, will we be taxed for the full year of 2020 (as per the normal Portuguese tax year) even though we will only become citizens in December? I also understand that we need to be resident for six months before we can apply for Non Habitual Tax Residency in 2021. Again, does this mean half a year taxed as a normal Portuguese citizen and half in the NHTR category?

Finally, if we buy a house in Portugal and then sell the UK house within the ten year NHTR period are we exempt from Capital Gains or should we sell the house in the UK BEFORE buying in Portugal, again within the ten year period?

Maybe someone can answer some of this!!

 

Many thanks

 

Ker

 


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(@lincolnbaggie)
Estimable Member Admin
Joined: 6 years ago
Posts: 111
14/06/2020 7:32 am  

Hi @ker

I can give you some pointers based on my personal experience as I did just this fairly recently (apart from the motorhome bit). Technically you can only apply for residency after you've resided here for 3 months but in practice my local camara was not bothered about that and didn't ask any questions (they just sorted out the paperwork).

Getting residency from your local camara is not the same thing as tax residency.

I got my residency certificate from the council in a December as you are planning, but didn't actually become tax resident until the following year when I went to Financas and changed the address listed with them to my Portuguese address (that is when they seem to consider you tax resident). I applied for NHR status starting that year (not the year I actually got a residency certificate) and they approved me within 24 hours. I was told by various people that it wouldn't happen and I had to apply for the year I got the residency certificate from the council, but my experience shows that this is not true. There was also no 6-month residency requirement.

NHR status will apply to the whole year in which you are granted it and you can apply up to March 31st of the following year, so if you apply before March 31st 2021 you can get NHR status for the whole of 2020 or apply for 2021 before March 31st 2022 if you do not become tax resident until 2021. If you are not working in Portugal and have NHR status it doesn't really really matter whether you are taxed for the whole year or not as you won't pay any tax on your rental income from the UK in PT anyway (that still has to paid in the UK though). The state pension I think is the same, but they are bringing in a flat rate of tax on pensions under the NHR status but I believe that is only for a private pension (but please check that with an accountant over here).

Profits from selling your UK house once living in Portugal do not get taxed in Portugal if you have NHR status (I've just done it), but you will have to declare it to HMRC in the UK within 30 days of selling and you may pay CGT there. The UK side of things is actually the more worrying bit as they have also changed the rules there regarding letting relief and declaring CGT, and as non-residents in the UK the way the rental income is taxed is also different in the UK (you have to apply to receive your rental without the tax being deducted at source and then declare it on your self-assessment form in the UK).

Probably the most important question you should ask your accountant is regarding your share investments; any dividends received are tax-free under NHR status, but any profits from selling them as a Portuguese tax resident are taxed in PT regardless of NHR status and the tax rate can be quite high.

I think you probably need to talk to someone with proper knowledge of both UK and PT tax to be able to plan this properly.


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 Ker
(@ker)
Active Member Premium Member
Joined: 2 months ago
Posts: 8
14/06/2020 1:05 pm  

lb that is a great and really informative reply. I'm going to copy and paste it into a word document so I can refer to it as part of my full understanding of the move. Thank you very much! Ker


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(@hartmill)
Estimable Member VIP Member
Joined: 12 years ago
Posts: 147
15/06/2020 10:45 am  

@kerHi, Welcome to the forum, and best wishes with your future move. You will love it here. Just one word of caution, many of the rules here are applied in a very arbitrary way. What happens in one area is not always the same in another. For example I use an accountant and pay tax here. I know someone in a different area, who applied to pay tax on his pensions, he was told to go away as they felt it was too complicated!


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(@lincolnbaggie)
Estimable Member Admin
Joined: 6 years ago
Posts: 111
15/06/2020 10:59 am  

@ker one thing I forgot to mention re the shares is that if you have them under an ISA umbrella in the UK technically you should pay tax on the dividends in PT even under the NHR scheme (and future CGT) as they are not taxed in the UK. The rule generally applicable is that if something is subject to tax in the UK (whether you pay it or not) it is not taxed in PT under NHR; anything not subject to tax in the UK is subject to tax in PT regardless of NHR status. As Hartmill says though, the rules tend to be interpreted differently depend on who you speak to and where you are...


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 Ker
(@ker)
Active Member Premium Member
Joined: 2 months ago
Posts: 8
15/06/2020 3:32 pm  

Thanks both. We may be changing our plan! Now we feel that selling the house now would be the best option and also cashing out all funds currently within a stocks and shares isa before becoming a PT tax resident. This would mean getting both sets of funds tax free while still resident in the uk. 

The pension is a sipp invested in stocks and shares and I don't want to touch this yet. I need to find out whether a sipp invested in stocks and shares would be subject to 10% NHR when withdrawn in yearly lumps or 28% if deemed as shares (even though they are inside the pension). Obviously this would make a big difference and I am still not clear on this and no research seems to give me the answer. 

Thanks for all your help. We'll get there!


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(@lincolnbaggie)
Estimable Member Admin
Joined: 6 years ago
Posts: 111
15/06/2020 3:44 pm  
Posted by: @ker

Thanks both. We may be changing our plan! Now we feel that selling the house now would be the best option and also cashing out all funds currently within a stocks and shares isa before becoming a PT tax resident. This would mean getting both sets of funds tax free while still resident in the uk. 

The pension is a sipp invested in stocks and shares and I don't want to touch this yet. I need to find out whether a sipp invested in stocks and shares would be subject to 10% NHR when withdrawn in yearly lumps or 28% if deemed as shares (even though they are inside the pension). Obviously this would make a big difference and I am still not clear on this and no research seems to give me the answer. 

Thanks for all your help. We'll get there!

Unfortunately not the best time to be selling a home in the UK or cashing in stocks and shares at the moment; let's hope it improves over the next few months. The Portuguese tax office probably doesn't even know what a SIPP is, let alone how to tax you on it! I guess the dividends alone wouldn't be enough to live on?


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 Ker
(@ker)
Active Member Premium Member
Joined: 2 months ago
Posts: 8
15/06/2020 3:51 pm  

@lincolnbaggie I've been fortunate enough to invest all funds into a well performing Gold mining share  which is doing extremely well but doesn't pay dividends. That means having to liquidise some each year for the pension. Love the comment about the tax office not knowing what a sipp is haha. Maybe I am ascribing a lot more officialdom than is practiced!


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