Ideally, you should plan ahead of your move abroad to make sure that everything is appropriately in place. However, that’s not always possible since decisions have to be made quickly for the sake of a job, or just because you can’t wait any longer!
No matter when you move abroad, dealing with your taxes should be at the top of your list to make sure all obligations are being managed properly. Without having the right processes in place, it could be a very costly mistake – especially if the UK and Portugal wish to tax you twice on the same income source.
Of course, you need a visa
Portugal has a variety of visa options, to hopefully suit everyone that’s considering a move here. Since this article is more about the taxation we won’t go into depth too much, since you can find more information with RHJ Law. However, here’s a simple list of the most popular visa options:
- D7 Visa (Passive or pension income)
- D8 Visa (Digital Nomad)
- D2 Visa (Entrepreneur Visa)
- D9 Visa (Golden Visa)
Steps to take in the UK before you move
As mentioned in the introduction, ideally you should have done all this before your move. If not, it’s ok. Either way keep reading, to make sure you have done things properly.
Inform HMRC you’re leaving
People always seem to be easily confused about how this is done; you just need to notify HMRC on your Self-Assessment tax return. If however, you’re not a self-employed individual or company owner, then make sure to complete a P85. By advising HMRC you can make sure that any tax refunds due are sorted and, to make sure you’ll pay the right amount of tax if you continue or start receiving a UK pension in Portugal.
Statutory Residence Test (SRT) assessment
For some people, the UK tax residency label can remain and this all depends on the Statutory Residence Test. This test takes into account the amount of time you’ll be spending in Portugal, where you’ll be classified as working, and any connections you have with the UK (like rental properties). However, if you have been in the UK for more than 183 days in the same tax year then automatic tax residency will apply – so be cautious of that too.
There are a few sections to this test, but typically our clients fall into the ‘sufficient ties test‘. This looks at the number of connections you have to the UK, alongside the number of days you spend in the UK. To then calculate if you will be classified as a tax resident of the UK, for that particular tax year. To keep it simple, the more UK ties you have the fewer days you should spend in the UK; to avoid being classified as a UK tax resident.
Pensions check
When you move to Portugal, tax residency has a big impact in determining how, and where, your pension income will be taxed. And so, it’s important to be familiar with the UK pension tax system plus the pension tax system in Portugal too. Perhaps even consider speaking to our international finance team. They are aware of the rules between both countries, so they can help you balance the tax systems as best as possible.
Take your tax-free amount
You might already know, the tax-free amount for UK pensions is usually £12,750. So make sure to keep this in mind, should you be receiving additional income whilst you’re living in Portugal.
Review pension arrangements
In some situations, your pension might be taxed solely in Portugal, however others might still have to pay tax in the UK. Generally pension income is taxed in Portugal at the progressive personal income tax rates. These rates start at 12.5% and then rise progressively to 48%, the amount of tax you pay will depend on the amount of pension income received. However, for those that have the NHR (which is unfortunately no longer available) their pension income is taxed very nicely, here in Portugal.
The key considerations for your pension is the ability to access flexible draw-down, manage investment sources, and even receive payment into foreign bank accounts. So it’s of course best to clarify things with your pension provider, or perhaps look to find another provider. Of course if you have a state pension, there might not be as much flexibility. Something to keep in mind is currency risk, since you might have to continue receiving income in pounds and then convert into euros. Exchange rate fluctuations can erode your pension income over a long-term period, but if you consider a multi-currency pension account this might help to reduce this lack of flexibility.
National Insurance checks
Whether you’ll continue working for a UK employer, manage a UK company or become self-employed in Portugal; National Insurance contributions affects all scenarios.
Self-employed individuals in Portugal, known as “trabalhador independente,” must begin making social security contributions after completing their first year of activity. Social security in Portugal is equivalent to National Insurance in the UK. If you’re currently paying National Insurance in the UK, you may find yourself contributing to both systems once you start paying Portuguese social security. It’s worth evaluating whether to continue your UK National Insurance contributions or transition entirely to the Portuguese system to receive benefits during your time in Portugal.
Continue voluntary contributions, or not
The Gov.UK website has plenty of information on this topic, and so depending on which tax year is being focused on different rules will apply. Many people focus on the fact that they have been paying into a UK State Pension, and they’d like to continue contributions to keep topping up the pension pot. Whilst it is still an option to make State Pension contributions, you’ll also have to think about the agreements between the UK and Portugal and what your UK employer might have to do. In general, UK employers living abroad in Portugal can only continue voluntary contributions for a 2-year period. Following this period, your UK employer must set up a Portuguese branch; which can be costly.
Review financial accounts
The reality of being able to keep a UK bank account as an expat in Portugal depends on the bank provider. Some high-street banks let you keep the existing account, but for others it’s mandatory that you must be a UK tax resident. And so, if you’re moving permanently to Portugal it might be worth considering to open a main bank account in Portugal.
Do your bank or investment providers need to know of your move? Do you need to open a multi-currency account?
Since the UK left the European Union in 2020, banks such as Barclays announced that they would close accounts for British people who live overseas. So, if you notify a bank like Barclay about an address change then it’s likely your account will be closed. By telling your provider that you have moved abroad, they might have international account options for you; to use in Portugal. But at the end of the day, it’s down to the account holder what they’d like to do.
Opening a standard bank account in Portugal is useful, since some cafes, restaurants, shops, even the post office (CTT) only allow payments by Portuguese-based bank accounts. So in order to not restrict your daily living, perhaps research account options in Portugal.
Steps to take in Portugal, before you move
Obtain a NIF
First things first, you need a NIF (Número de Identificação Fiscal) to make personal tax, social security, property or car tax payments. Plus, the NIF is your local tax ID number which can be used towards expenses which helps lower your overall tax payment.
Open a Portuguese bank account
As mentioned above, having a local account in Portugal is particularly useful to make sure you can still manage daily payments – and get a treat from a local cafe! Now, it can be tricky sometimes to open an account in Portugal, and if you don’t know the language some providers will lack comprehension to help you. So take a look at expat forums to get a feel for the best expat-friendly bank providers.
Register your address
Any correspondence that the Tax Authority send you will be posted to the address registered on your portal. So, if you haven’t yet updated your address from the UK to Portugal you might be missing out on important correspondence. But also, simply changing your address from the UK to Portugal will trigger you to become a Portuguese tax resident; which is important to make sure your tax residency status is relevant to the right place.
Apply for a NISS
A Número de Identificação de Segurança Social is a social security number; similarly to having a National Insurance number in the UK. This number is particular important for self-employed individuals that have an activity registered in Portugal, since regular social security payments will need to be made. But also, if you’re an employee of a Portuguese company or an employer in Portugal, NISS numbers are also important for contributions too.
What to do when you’ve moved to Portugal
Register as a tax resident
So that you’re correctly classified as a Portuguese tax resident, the address registered to your NIF number needs updating to Portugal. Without doing this, you’ll be living in Portugal and perhaps still considered as a UK tax resident so when tax return season comes around your taxable amounts will be all over the place. By changing your address, and updating the UK about your move, your income will be taxed in the right country considering the local tax rates.
Review your UK income after relocating
Portugal uses progressive tax rates for personal income tax, ranging from 12.5% to 48%. If you’re in a higher tax bracket, your income isn’t all taxed at the top rate. Instead, different portions of your income are taxed at progressively higher rates as you cross each threshold, eventually reaching up to 48% on your highest earnings. So, reviewing your UK income sources against the respective taxation rates in Portugal is important. Not everything is taxed at the same level, this includes: employment, self-employment, rental income, capital gains, savings, investment and pension income.
For those that have companies in the UK, it might be worth considering to open a branch in Portugal or Madeira to benefit from a lower corporation tax rate overall. Which will then help with your personal income tax level, since you’ll be taking more advantage of your corporate funds.
What you need to avoid
Failing to notify HMRC
By failing to notify HMRC about your relocation to Portugal, you’ll still be classified as a UK tax resident. So then, you might go years without realising that you owe tax in both the UK and Portugal, and when you do it’s of course a very high tax bill which needs fixing. So it’s of course best to get things right from the get go, to hopefully have a smooth tax residency experience in Portugal.
Taking your tax-free pension amount after relocating
When you move from the UK to Portugal, you lose the right to take your tax-free lump sum from your UK pension. Once you become a Portuguese tax resident, your pension withdrawals will be subject to Portuguese income tax. This means that if you haven’t already taken your tax-free lump sum before relocating, you could miss out on a significant tax benefit. It’s therefore advisable to consider taking your tax-free pension amount before making the move to Portugal, or at least speak with our team to understand the implications for your specific situation.
Failing to change your tax address
Similarly to the HMRC subject, by failing to update your tax address (the NIF address) you’ll still be considered a UK tax resident. And so, when the change is made you might be a tax resident for longer than you originally thought; which could create a higher tax bill than expected.
Ignoring filing obligations for a tax return (even if no tax is due)
As a Portuguese tax resident, you must file a tax return in Portugal no matter if you received zero income. This is to make sure the Tax Authority are aware of your tax status here in Portugal, and should the situation change as years go by there’s a record of your situation.
How RHJ Accountants can help
We can help with all of the above and so there’s no need to find another firm, to help manage the bits in between. Whether you made the move to Portugal, from the UK, a few weeks ago (or years ago) or you’re considering the move in the next year or so, we can help.
Our team of accountants are very familiar with the joint agreements between the UK and Portugal, so we can make sure no matter your income source type that it’s being reported properly; and also being treat efficiently – so you don’t end up breaking the bank.
