Why UK landlords are flocking to Portugal

by Mark Alexander

9:18 AM, 9th August 2018
About 2 years 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

Appalled Landlord

22:30 PM, 18th August 2018
About 2 years ago

Reply to the comment left by Miascot at 18/08/2018 - 20:56
Hi Miascot

You’re very welcome. I have been looking into NHR since I heard about on Christmas Day. I thought I should pass on what I had discovered. You’re appreciation has made the effort worthwhile.

It was 2004 when I was looking for a place in Spain. I bought a flat on the Costa del Sol but I have now sold it.

Since 2013 the tax regime in Spain has been the very opposite of NHR. All tax residents there have to report their worldwide assets over 50k to the tax authorities. Those who fail to do so receive massive fines. How do they know if you haven’t declared? HMRC will give them all your tax details, and any other details they ask for.
https://www.citizensadvice.org.es/make-sure-tax-affairs-order-theres-nowhere-hide-spanish-taxman/

Failure to comply could cost you your UK house. https://www.spanishpropertyinsight.com/2013/04/01/spain-targets-expat-assets/

For a more recent horror story see paragraph 8 of this:
https://www.goygentile.com/en/model-720-obligation-to-declare-assets-located-outisde-spain-key-points/

But the European Commission considers the penalties disproportionate. https://www.janetanscombe.com/politics/resident-foreign-assets-reporting-modelo-720.html

So I have always been careful not to spend more than 182 days a year in Spain.

Miascot

9:28 AM, 19th August 2018
About 2 years ago

Reply to the comment left by Mark Alexander at 18/08/2018 - 11:28
Why are you thinking of leaving Malta and where in Portugal would you choose?

Mark Alexander

9:57 AM, 19th August 2018
About 2 years ago

Reply to the comment left by Miascot at 19/08/2018 - 09:28
My wife and I would like to do more travelling but to enjoy the tax benefits of Malta fully we need to spend at least 183 days a year in Malta. This is somewhat restrictive but Portugal has no such restrictions for NHR status. The tax position is otherwise very similar.

There are other pros and cons to weigh up too but Portugal does seem quite a lot cheaper and provides different opportunities to those in Malta. It’s also mainland Europe.

The downsides are that Malta has amazing healthcare, is an English speaking Country and they drive on the left.

We are seriously considering Portugal but have not made a final decision yet. We are planning a trip at the end of September to check out Vilamoura and Pria de Luz. We have good landlord friends in both of those locations.

We particularly like the look of the resort based properties in the Algarve. That’s something we don’t have in Malta. These provide an opportunity to make our home available for letting to holiday makers when we are not there. We could do the same in Malta but the resorts seem to take all the associated hassle away, for a price of course!

NW Landlord

11:20 AM, 19th August 2018
About 2 years ago

Luz is really nice and has Lagos right next to it I have friends that have property there and have got good contacts for bank repossessions and mortgages etc. Nearly bought in Lagos but it fell through great place to live though

Bristol Landlord

17:02 PM, 20th August 2018
About 2 years ago

Reply to the comment left by Lee Gough at 12/08/2018 - 11:36
Hi Lee, I’m already UK non resident, currently in the USA, and also considering selling my UK places. I’m looking for a place to move to where I can sell with minimal CGT. Can you say which were the other seven countries you were advised of? I’m aware of Malta, Gibraltar and Cyprus at least as candidates but would be interested to know the others before I decide.

Lee Gough

17:27 PM, 20th August 2018
About 2 years ago

Reply to the comment left by Bristol Resident at 20/08/2018 - 17:02
The seven places that were suggested was Andorra, Isle of Man, Monaco and as you know Malta, Gibraltar, Cyprus and of cause Portugal. I considered Malta, but did not really look at the other countries as I wanted easy access for friends and family to visit.

Mike T

22:51 PM, 30th August 2018
About 2 years ago

Reply to the comment left by Lee Gough at 12/08/2018 - 11:36
Good post Lee. We share your thoughts on leaving the UK. However we are in Spain - not a million miles away - and we see that both Portugal and Spain have had a hotter than usual summer. We are reducing or smallish portfolio in TQ and as Non UK resident it is reducing the CGT as you indicated. Do we miss TQ/UK ? NO ! Best wishes M & S

Mark Alexander

5:49 AM, 31st August 2018
About 2 years ago

Reply to the comment left by Mike Amapola at 30/08/2018 - 22:51
Hi Mike

Have you looked into the CGT position in regards to declaring all worldwide income in Spain? I’ve heard it’s not good at all, despite the tax breaks you get in the UK on CGT now that you are non-resident.

I suggest you have a look at the comments and links on this thread posted by Appalled Landlord.

Appalled Landlord

19:29 PM, 19th September 2018
About 2 years ago

Portugal has climbed nine places to claim the title of the friendliest country towards foreign residents worldwide.
https://www.internations.org/guide/global/the-top-10-most-welcoming-countries-39411

Portugal rated best European country for expats.
https://cms-internationsgmbh.netdna-ssl.com/cdn/file/2018-09/Expat-Insider-2018_The-InterNations-Survey.pdf

Peter Jennings

13:55 PM, 24th October 2018
About 2 years ago

Reply to the comment left by Mark Alexander at 18/08/2018 - 21:28
Hi Mark (and all). How do Malta, Portugal, Cyprus and Andorra compare as far as tax is concerned? I like the sound of Portugal so far (and have a UK property friend already there) but would love to know more about other tax efficient options. Andorra (skiing) in the Pyrannees sounds interesting as does Malta (sailing) etc.

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