Every single year the UK loses a number of its citizens to the Portuguese sunshine and inimitably attractive way of life in Portugal. The majority of these people head off in search of adventure in Portugal giving little in the way of a second thought to their financial affairs before they go…but once they are living in Portugal thoughts of expatriate tax, pension income, savings and investments often comes to mind.
If you’re in a position where you have just made the move or are about to expatriate, here’s the essential tax information for Brits living in Portugal that you are likely to need.
If you move to live permanently in Portugal the Portuguese taxation authorities will consider you to be tax resident after you have lived in their country for 183 days within any tax year. As is nearly always the case with countries around the world, these 183 days do not have to run consecutively. So, if you are planning on moving permanently and making Portugal home, you can tell the UK tax authorities of your intention and complete a short form informing them where your new country of tax residence is.
Once you are officially a tax-payer in Portugal the bad news is that your worldwide income and gains are subject to Portuguese tax! The current rates of income tax in Portugal are as follows – but note, these change at least annually so check with an accountant in Portugal to determine what your own liability is likely to be in a given tax year.
From 0 to 4,639 euros you are taxed at 10%, from 4,640 to 7,017 euros the rate is 13%. Thereafter up to 17,401 euros the rate climbs to 23.5% before reaching 34% % for anything you earn between 17,402 and 40,020 euros. Between 40,021 and 58,000 euros you pay 36.5%, between 58,001 and 62,546 euros you pay 40% and then finally, anything over 62,547 euros is taxed at 42%.
Annoyingly, capital gains in Portugal are usually added to your income so that this pushes your income tax liability up significantly higher, unless the gains originate from share based investments and then they are flat taxed at 10% or they are considered tax exempt.
When it comes to getting your UK pension when living in Portugal there is much you need to understand. First up there is the fact that there are three types of pension income and depending on the type of pension income, you will be taxed differently!
If you are in receipt of a UK government service pension this is taxable in the UK. You should arrange to have your occupational and private pension income from the UK paid to you gross in the same way your state pension will be paid to you. 15% of your private pension income will be taxable at the usual Portuguese income tax progressive rates and there are some additional levels of relief for those in receipt of other pension income. But because the situation is so complex, you are strongly advised to take professional advice from a qualified and experienced international financial adviser.