Following the announcement that the UK has voted to leave the EU, some clients have showed their concern about how this may affect their future as property or business owners in Portugal.
First of all it’s important to reiterate that nothing will change immediately, the process of UK leaving the EU may take up to two years, or more, so in the meantime nothing will be different for those UK nationals living or owning business or property in Portugal.
I have a holiday home, what are the implications of this?
From the tax point of view, for those that are second home owner, there is almost no difference between the EU citizens and non EU citizens. The only difference is that all non EU citizens need to appoint a fiscal representative, so this may be the case in future for those that are UK residents and hold or want to have a Portuguese fiscal number.
What will be the changes on taxation?
Portugal and UK have a double tax convention in place since 1968. This is not foreseen to change in the near future or to be affected by the result of this referendum. So if you are resident in Portugal, you will continue to be obliged to declare in Portugal, all your income. If however you are non-resident, you should only declare in Portugal, any income you may have from Portuguese source and this applies obviously to your property lets.
The tax to pay, for non-residents in Portugal is the same irrespective if you are a EU citizen or not, and this also applies obviously to your property rates (IMI).
What about the Capital gains tax from property sales?
The only possible impact will be on the reinvestment possibility. At the moment all full time residents can reinvest the proceedings of the sale of their primary residency, in order to avoid or minimize the payment of capital gain tax. This reinvestment can be made in any EU country, up to two years after the sale of their primary residence in Portugal has occurred. This means that if the UK effectively leaves the EU, anyone selling their primary residency here, to return to the UK, may no longer use that purchase to offset against capital gains if and after UK leaving EU.
For those that have a second home and are non-residents there will be no difference.
I live in Portugal full time and have a business here: what will happen now?
Those that live and or work in Portugal, should firstly make sure they are correctly registered as residents. It’s important to highlight that from the tax point of view, the address you have at the tax office, determines if you are resident or not. So it’s important if you do live and work here permanently, to make sure that you are correctly registered, integrated in the health system, etc.
If you live permanently in Portugal, but haven’t officially registered your presence yet, maybe now is the time to register and why not to opt for the Non Habitual Residence status? This is a special regime that allows you to become tax resident in Portugal, with several tax exemptions and benefits.
What about the social security payments?
As mentioned earlier, the result of this referendum won’t have any immediate consequences to your status. So if you own a business in Portugal and benefit from any social security exemption due to the fact that you already make social security payments in the UK, the situation remains the same.
The question whether this situation may change in the future, will remain with no answer at this stage as is still too early to find that out.
Will it be any issues in transferring my pension to Portugal and will this have an impact on the tax I pay in Portugal?
As mentioned above, you only declare your UK income in Portugal if you are a resident. If you are non-resident, you will only declare the income from Portuguese source. So in case you live in Portugal and receive a UK pension, please be aware that you are taxed on what you earn and not what you remit to this country. So the decision of transferring more or less money is yours and won’t make any changes to your current tax situation.
Again if you live in Portugal and receive a UK State pension, you will still declare this in Portugal and continue to be tax exempt here, as the double tax agreement between Portugal and UK, is still in place.
Will it be any consequences in terms of inheritance tax?
At present inheritance tax between spouses or direct line (children, grandchildren, parents grandparents etc.) is exempt in Portugal, i.e. zero. Other inheritors will pay 10% inheritance tax. It’s important that you know that what determines this, is the location of the asset and not the fact that you are resident or not. So any assets you have in Portugal are covered by this, but your assets in another country, will have to refer to that tax jurisdiction. Also, the fact that the inheritor belongs or not to the EU, doesn’t have any implications.
Last but not least, those that own a business in Portugal and are worried about the exchange rate and how this may affect the number of UK tourists in Portugal, please note that the influx of tourists in Portugal has grown considerably over the last 3 years and this has been boosted by the increase from several different nationalities, such as the French, Belgium, Spanish, German, etc.
These tourists visit Portugal because it is a beautiful country with over 300 days of sun per year. There are no news that this will change after the referendum.
Please feel free to contact us to discuss your personal situation, to find whether you meet the criteria to qualify as a non-habitual resident (NHR) or what is your capital gains liability, in case you decide to sell your property.
DISCLAIMER: Please note that this text has been written on the 24th of June and it’s still too early to make any drastic decisions or to jump into conclusions. This text contains description of a generic nature and cannot preclude specialist advice in connection with specific situations. The markets and the politics are very volatile and the only thing advisable is to plan ahead and search the assistance of local experts.