Why UK landlords are flocking to Portugal

by Mark Alexander

9:18 AM, 9th August 2018
About 11 months 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

Mark Alexander

13:02 PM, 12th August 2018
About 11 months ago

Reply to the comment left by CazT at 12/08/2018 - 12:53
I think it’s everywhere. I’ve been in Russia for the Summer to escape the heat in Malta and I’m burning up here too!

Even the UK is too hot this year.

Can you believe we are going to Torquay for a 10 day holiday in August? Imagine how strange that feels for me! My wife insisted, she’s never been there, and I was also only too happy to agree as I have many fond memories of my childhood holidays Mackerel fishing there.

CazT

13:23 PM, 12th August 2018
About 11 months ago

Reply to the comment left by Mark Alexander at 12/08/2018 - 13:02
You will find Torquay very different from when you were there before. There are lots of lovely places to visit in that part of Devon and you’re not far from Cornwall if you fancy a trip and a pasty! With a bit of luck it should be cooler over there, Spain is scorching. We are in the middle of insulating the whole house and have just installed central heating - winter was freezing! Other than the climate extremes, I love it here and when my blood thins eventually, it should be a lot easier.

Mark Alexander

13:42 PM, 12th August 2018
About 11 months ago

Reply to the comment left by Lee Gough at 12/08/2018 - 11:36
One other thing I forgot to mention Lee. Incorporation relief under TCGA92/s162 works in addition to non-resident CGT rates. Accordingly, all capital gains post April could be washed into shares at incorporation, this meaning no CGT to pay now and only corporation tax to pay on any future capital gains when the company sells.

If you want/need to refinance there are some cracking five year fixed rate deals around, but if you have attractive tracker rate mortgages you would prefer not to redeem then you could use the BICT strategy to avoid the need for refinancing.

Also, if you are a partnership there is no Stamp Duty payable when you do the transfer.

Lee Gough

15:25 PM, 12th August 2018
About 11 months ago

Reply to the comment left by CazT at 12/08/2018 - 12:53
We have properties in Spain and looked to move there but did not have the tax advantage Portugal does. And yes you are right the weather is better for us in Portugal with the breeze from Atlantic.

CazT

7:03 AM, 13th August 2018
About 11 months ago

Reply to the comment left by Lee Gough at 12/08/2018 - 15:25
I expect we are a lot older than you Lee, and I made the decision to off-load property almost as soon as S24 was announced. I have kept what we need to top-up our income and let the brilliant Lettingsupermarket.com deal with everything. My tax bill wasn’t a shock last year and my accountant advises me it shouldn’t be too bad over the next few years. I actually didn’t buy with a view to capital gain, my requirement was a steady income. If I lose a bit or gain a bit, I’m not overly worried.
Your life in Portugal sounds wonderful, so glad you escaped the rat race, we don’t miss it a bit!

S Somerset

10:51 AM, 14th August 2018
About 10 months ago

Reply to the comment left by Lee Gough at 12/08/2018 - 11:36
wonderful post! Where in Portugal are you located?

Lee Gough

12:25 PM, 14th August 2018
About 10 months ago

Reply to the comment left by S Somerset at 14/08/2018 - 10:51
Thank you, we are in Praia da Luz, ' Beach of the Light '

Mark Alexander

12:29 PM, 14th August 2018
About 10 months ago

Reply to the comment left by Lee Gough at 14/08/2018 - 12:25
I didn’t realise that was the translation Lee.

My wife’s name (Svetlana) also means light. She will claim the beach is hers if we decide to move there lol 😂

Conkers

21:26 PM, 14th August 2018
About 10 months ago

Hi Mark as a landlord holding properTy through a uk limited company my advice was that on moving to Portugal the place of effective management would become Portugal and the company would become Portuguese resident. This would prevent using the nhr to draw dividends tax free. How can this be gotten around?

Mark Alexander

22:38 PM, 14th August 2018
About 10 months ago

Reply to the comment left by Conkers at 14/08/2018 - 21:26
Did somebody give you that advice or is it advice that somebody gave to you? Either way, can you substantiate it in any way please?

How can a UK company ever be deemed to be resident in another Country? Companies don’t have residency.

In any event, I would have thought landlords who have decided to emigrate would be operating more of a CEO type role and delagating the day to day operational matters associated with the running of their business to UK based contractors, employees or agents. On that basis, I still don’t follow the logic behind your question. Perhaps you could try to make your point more clearly?

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