Why UK landlords are flocking to Portugal

by Mark Alexander

A week ago

Why UK landlords are flocking to Portugal

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Why UK landlords are flocking to Portugal

Did you know that UK landlords do not have to pay tax on their UK dividend income from incorporated rental property businesses if they live in Portugal?

Have you ever heard of the Portugal non-habitual residents scheme?

By the time you have finished reading this short article I think you will probably want to find out more, and I will be pleased to help.

The non-habitual resident (“NHR”) taxation regime came into force in Portugal in 2009 and is proving very successful at attracting individuals of independent means to establish residency in Portugal for tax purposes, while not being subject to minimum or maximum stay requirements.

The NHR regime essentially grants qualifying individuals the possibility of becoming tax residents of a white-listed jurisdiction whilst legally avoiding or minimising income tax on certain categories of non-Portugal sourced income and capital gains for a period of 10 years.

Taking the UK/Portugal convention as an example, if you are a resident of Portugal but receive dividends from the UK, then the UK has the power to tax them under article 10, although it does not do so if the recipient is not a UK resident. On the other hand, Portugal will not tax such dividends in the hands of a NHR either, because the UK has the ability to tax them under the convention but doesn’t do so. Accordingly, the non-habitual resident of Portugal may receive dividends from UK sources completely free of tax. Similarly, there is no CGT to pay in Portugal on capital gains realised in the UK and HMRC only tax capital gains made after April 2015 for non-residents.

So, for landlords who have already incorporated their rental property businesses, they could take advantage of the NHR scheme and pay no tax at all on their dividend income.

For landlords who have not incorporated, perhaps due to having “latent gains” (mortgages exceeding base costs), the NHR scheme also provides an opportunity to re-set those base costs at the April 2015 value of their portfolio.

If you are already a UK landlord living in Portugal I would love to hear from you in the comments section below. Questions which immediately spring to mind are:-

  • Do you already have NHR status?
  • What are the advantages and disadvantages of emigrating to Portugal?
  • Are you happy you moved?
  • How has it changed your life?
  • Have you incorporated your business and if not, why not?
  • Can you share any tips?

If you would like to learn more about incorporating your property rental business, and how the NHR scheme could help you to optimise your tax position pre and post incorporation, please book a tax consultation with me.

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Comments

Paul Hill

A week ago

Hi Mark, this is of interest to me.
Have property in Portugal and about to complete on 6 flats.
Please can you call me urgently to discuss this?
Editors Note: We have emailed Mark your contact details.

CazT

A week ago

Not sure if an external link is allowed but I’ve just read this article and found it very informative and quite simple to understand....
https://tax-free.today/blog/nhr-residency-in-portugal/

Terence Joseph

A week ago

I understand that whilst Portugal's non-habitual resident (“NHR”) taxation regime is not subject to minimum or maximum stay requirements you are however required to have the "ability" to stay in Portugal for a minimum of 182 days e.g. In a property that you own or rent - even if you do not actually do so. I understand hotels and short stay accommodation would not qualify in this regard. Furthermore if you reside in the U.K. for more than 90 days you will remain subject to U.K. taxation irrespective of your Portuguese NHR status. If on the other hand you are able to avoid the U.K. taxation altogether you would lose you U.K. tax free allowance.
If anyone knows otherwise I would love to hear more! 🙂

Hi Mark

Some friends of mine moved to the Algarve in May, and they love it. I have been there and I can see why. It is surprisingly green, unlike Spain’s Mediterranean coast. They bought a flat in Vilamoura, a location they describe as paradise - and they don’t even play golf. The weather is reliably warm, and the fruit and veg put the UK to shame.

Of course, there is more to Portugal than holiday resorts. There are cities, towns and villages, and a lot of countryside. And Madeira, another beautiful location, is part of Portugal.

The Portuguese people are very friendly and helpful, but their spoken language is difficult to understand. However, English is widely understood, at least in areas that have foreign visitors.

Cars are very expensive in Portugal, even second hand. Petrol and diesel are expensive too.
If you wish to import a car you need to have owned it for at least 6 months and you have to register it in Portugal within 6 months of arrival. You can calculate the import tax here https://impostosobreveiculos.info/isv/simulador-rapido-isv-2018/#left

A footnote says that on cars less than 6 months old or with fewer than 6,000km on the clock, VAT of 23% will also be payable, regardless of whether it was already paid in another country, so be warned!

Road tax was amended in July 2007 so cars registered before then still pay less tax now than the same model registered later. The annual road tax can be calculated here: https://impostosobreveiculos.info/iuc/simulador-iuc-2018-matriculas-a-partir-julho-2007/

My friends learned about NHR from this free guide: https://www.belionpartners.com/portugals-non-habitual-resident-regime.html

It was very simple to get tax reference numbers, then open a bank account, then register as residents and finally apply for NHR. The estate agent helped them with the first two processes and their lawyer with the second two.

They will have to submit a tax return next April/May showing their worldwide income, and the amount payable will be nil, based on their sources of income. Capital gains on foreign real estate are not taxed under NHR. However, royalties and gains on the sale of foreign securities and other movable property are taxed in Portugal even under NHR. Pensions from UK Government service will still be taxed in the UK.

They had to apply to HMRC, online, to allow their tenants to continue to pay rent without deduction of tax, and they have to report the sale of a UK property, and submit a CGT calculation, to HMRC within 30 days . However, payment of the CGT will not be due until January of the following tax year They will have to submit their tax returns by 31 October and will not be able to use the online self-assessment forms.

They had not incorporated their business in the UK because they want to resume selling properties once the prices have returned to pre-crunch levels, and retire. They plan do do this as soon as possible during the 10-year NHR period.

After that, I doubt that they would want to move anywhere, and certainly not back to the overcrowded UK which was already being turned into a foreign country during their lifetime.

They have been made welcome in Portugal because, as their accountant said, “ We want you to spend your money here!” This is in stark contrast to their being vilified in the UK for being landlords.

Mark Alexander

A week ago

Reply to the comment left by Terence Joseph at 09/08/2018 - 14:31
You are right that you must own a property in Portugal or rent one for 12 months a year, so that you can show you have a basis to be resident there, whether you are or not.

90 days in the UK isn't entirely accurate. It could be as few as 15 nights in any 365 day period, or as many 180 nights. It depends on how many ties you have to the UK. The more ties you have, the less time you can spend in the UK without losing your 'temporary non-resident status'. I am able to provide bespoke guidance on these matters when consulted..

Mark Alexander

A week ago

Reply to the comment left by Appalled Landlord at 09/08/2018 - 14:39
Presumably, the only reason your friends have to complete their tax returns by October is that HMRC's online systems are not available overseas, and paper returns need to be filed?

For clients who appoint a UK accountant, this is not a problem of course, and tax returns can be submitted up until the end of January in the following year.

The other alternative is that your friends could pop back to the UK for Xmas to see friends and relatives and complete their online returns then.

Staff at town halls act for the Border Agency in registering citizens of the EU, the EEA, and Switzerland as residents of Portugal. The common denominator is that these countries all accept the free movement of people between them.

For people who move to Portugal this year, the deadline for NHR application is 31 March next year.  However, Brexit may bring the deadline for UK applicants to be automatically granted NHR to somewhat earlier than 29 March.  After that, UK citizens may need to apply for a residence permit:
https://www.belionpartners.com/portugal-residence-permits.html

S Somerset

A week ago

What happens to SIPPs pensions? Can you withdraw those tax free under this program?

NW Landlord

A week ago

I am buying in Portugal next year many friends have its beautiful food amazing and loads of traditional fishing villages along the algarve recommendation is cavoeiro 40 mums from faro and kept it Portuguese charm also Lagos aswell beautiful

Mark Alexander

A week ago

Reply to the comment left by S Somerset at 10/08/2018 - 10:02
I don't think so, but there may be an opportunity to convert them to a QROPS or QNUPS, but I'm not experienced or regulated to advise on that. However, I can refer you to an appropriately qualified adviser as part of a consultation with me.

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