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The Federation of European Independent Financial Advisers

Portugal has long since been a popular expat destination, but the Non-Habitual Residence (NHR) scheme has been instrumental in attracting new residents seeking a favourable tax regime.

NHR is a preferential tax status granted to new residents and lasts 10 years. However, the benefits of NHR are not automatic and you must plan to make the scheme work for your specific situation.

Pre-arrival planning
The ideal situation is to start looking at your finances before you move. This way you can identify any tax planning opportunities available in your home country that would otherwise not be available in Portugal and utilise any tax breaks and annual allowances.

From a UK context, for example, ISAs are tax-free in the UK but if you wait to surrender until after establishing residency in Portugal you will incur 28% tax on any gain (even with NHR).

NHR period planning
During NHR it is important to maximise the tax opportunities available, particularly the flat 10% rate on pension income and nil rate tax on foreign-sourced capital gains and income. It is also the opportune time to start thinking about how to structure your finances for when NHR comes to an end.

Post-NHR planning
At this point, you become subject to the standard rates of Portugal tax and the effectiveness of your position will be determined by the planning you previous implemented, particularly during the NHR stage.

Whilst the prospect of paying up to 48% on income (excluding solidarity taxes) and 28% on all capital gains is unpleasant, it is possible to rearrange your finances over time to reduce this tax burden.

Lastly, there are some subtle rules to the NHR scheme and international tax meaning that in some cases applying for NHR can put you in a worse tax position. Likewise, those with pre-April 2020 NHR and enjoying 0% tax on pension income will be subject to slightly different restrictions when drawing down their pensions to maintain this status.

As such, we recommend you always seek advice from appropriately qualified individuals with effective cross-border experience.

With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.

This article was kindly provided by Mark Quinn from The Spectrum IFA Group and originally posted at:

The above contents and comments are entirely the views and words of the author. FEIFA is not responsible for any action taken, or inaction, by anyone or any entity, because of reading this article. It is for guidance only and relevant professional advice should always be taken before investing in any assets or undertaking any financial planning.