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25 Things You Need to Consider Before Taking Up Residency in Portugal Image

25 Things You Need to Consider Before Taking Up Residency in Portugal

March 01, 2023

Living in Portugal as an expat is an appealing prospect. The country provides a safe and secure environment to enjoy your lifestyle in retirement, coupled with a very attractive fiscal regime under NHR. But how do you make your dream a reality?

 

From vibrant cities like Lisbon and Porto to the glittering resorts and beaches of the Algarve, beautiful countryside, hospitable people and a famously delicious cuisine, moving to Portugal offers many benefits.

 

There are also even more important reasons that make this country so appealing for UK citizens – from its beneficial tax rates for expats to a low, affordable cost of living.

 

However, a move to any country is a life-changing event, one that needs an abundance of planning, organisation and foresight. Here’s what you need to know.

 

1. Spend time in Portugal

 

 

As attractive as the country may be for expats, it’s still entirely possible that you could move to Portugal and find that it’s not the right fit for you and your family. It’s why you should make at least one trip to the country before making any permanent commitments.

 

Even if your heart is set on living in Portugal, it’s a diverse place and research online or via travel guides can only do so much. You need to visit so you can explore different parts of the country and decide where would be best to make your home.

 

2. Rent before you buy a property in Portugal

 

 

It’s natural that finding a place to live will be high on your list of priorities when moving to Portugal, but it’s important not to make any hasty decisions until you’re certain about where you want to settle. For that reason, it’s best to rent a home in Portugal before you commit to buying a property. That way, you can decide if where you’re living is suitable and whether you like the neighbourhood. If it’s not the right fit, you have the option of trying different areas, towns, cities and regions until you’re ready to buy.

 

The renting process can differ hugely from country to country and it’s important that you do your research ahead of moving. Speak to local estate agents and letting agents about housing prices, what kind of accommodation may be available and how the renting process works in Portugal (such as deposits, rental laws etc).

 

While viewing properties online while still in the UK is entirely possible, don’t commit until seeing the property in person. You could achieve this by making a couple of trips to Portugal ahead of the relocation, or waiting until you actually move.

 

If you choose the latter, getting an Airbnb or a holiday home for the first few weeks of residency in Portugal could be useful while you search for a longer-term rental. When searching, look for leases that have a six-month break clause, so you can move out easily if you do find a home you’d like to buy sooner than expected.

 

3. How will you exit the UK?

 

 

A move to a new country is as much about the exit as it is the arrival. Before moving to Portugal you need to tell HMRC when you intend to leave the UK by filling out form P85, available at hmrc.gov.uk.

 

You also need to do what you can to reduce liability to both UK and Portugal tax. The 2013 UK Statutory Residency Test lets you pick the date from which you become non-resident in the UK. It will also tell you how often you can visit the UK before triggering tax residency there again. It factors in a number of different considerations, such as family ties, business interests and property ownership.

 

Unless you leave the UK at the end of the financial year on 5 April you may still have to pay some UK tax once you relocate to Portugal. Split year rules may automatically apply for any of the following: you or your partner/spouse are starting full-time work overseas, or you cease to have a UK home.

 

Speak to a financial advisor who will be able to advise you on the best way to plan your exit from the UK. 

 

4. UK Inheritance Tax and UK Domicile

 

 

There is no ‘inheritance tax’ as such in Portugal, which makes it extremely attractive for those retiring in Portugal from the UK, but you still need to consult a financial advisor with knowledge of Portuguese succession laws as there are some factors to consider.

 

For example, Portugal has restrictions on who you can pass your wealth onto. ‘Forced heirship’ rules dictate that you must pass on a fixed portion of your estate to direct family members (like a spouse or children). It’s important that you establish a will in Portugal that clearly states how you wish your assets to be distributed, and whether you want to overrule forced heirship regulations.

 

While inheritance tax was abolished in Portugal in 2004, there is still a 10% stamp duty (imposto do selo) payable on assets inherited on death or as a lifetime gift. However, assets passed onto immediate family members (such as a spouse or children) are exempt.

 

The other major consideration is that residency in Portugal does not mean immunity from paying UK inheritance tax. Even if you have lived in the country for several years or even decades before you die, it’s possible that HMRC could still consider you UK domiciled. This means that tax of 40% is due if your estate is worth £325,000 or more. If you are married or in a civil partnership you have a shared allowance of £650,000 that is exempt from UK IHT. If your partner dies, they can pass their estate to you tax-free. If you are their sole beneficiary then you inherit their personal IHT allowance – this means that you may have a tax-free allowance of up to £1,000,000 if you are able to take advantage of the main residence exemption, which is £175,000 each.  

 

Inheritance tax in the UK is based on the concept of domicile, not residency. Changing one’s domicile is very hard as there are no fixed requirements and rules for the process. And if you did successfully manage to change your UK domicile of origin to a UK domicile of choice to reduce your inheritance tax liability, HMRC will thoroughly investigate your personal circumstances, including family connections, business interests, property ownership and any intentions to return to the UK. Even the most minor or seemingly irrelevant links to the UK could be used by HMRC to make you liable for UK inheritance tax.

 

It's best that you consult an expert and experienced financial advisor before your relocation. They will be able to advise you on different ways you can restructure your financial assets and legitimately reduce your exposure to UK inheritance tax.

 

5. Securing residency in Portugal

 

 

While Brexit has made living in the EU more difficult, it is still perfectly possible to relocate to Portugal as it offers a selection of residency visas that will let you live and work in the country, as well as travel visa-free within the Schengen Area.

 

The Golden Visa in Portugal offered a path to residency for those who could make a financial investment in Portugal, typically a purchase of real estate valued at €500,000 or above, or €400,000 if the real estate is located in a low-density area. However, the Golden Visa has now been suspended in Portugal subject to parliamentary approval.

 

For those retiring to Portugal from the UK, the best option will likely be the D7 or Passive Income Visa. You can obtain this visa if you demonstrate receipt of passive income from sources such as pensions, investments and rental properties. The D7 Visa gives leave to remain in Portugal for four months, and then you can apply for a residency permit for one year. You can renew this every two years and achieve permanent residency after five years. This residency visa when combined with the tax benefits of NHR status is a highly attractive option for British expats retiring to Portugal from the UK.

 

If you intend to work in Portugal and you are an independent professional or entrepreneur then you may be eligible for the D2 Visa. You will need to establish a company in Portugal, as well as a business plan and proof of financial assets to fund the business venture.

 

Portugal also recently introduced a digital nomad visa designed for remote workers who want to live in Portugal.  There are minimum income requirements, amongst other rules, but the visa can be extended for up to five years, after which a path to permanent residency is possible.

 

As well the ability to live and work in Portugal, and visa-free travel in the Schengen Area, these visas also give British expats in Portugal the right to apply for Non-Habitual Residency (NHR) status. This is a fiscal regime that offers an array of attractive tax benefits for expats in their first 10 years of residency in Portugal, more of which you can learn about later in this feature.

 

6. Re-evaluate your insurance strategy

 

 

Before relocating to Portugal you should speak to a financial advisor and/or insurance professional and review your existing insurance plan to ensure your coverage will continue once you leave the UK and establish residency in Portugal. They can also advise you on whether it needs to be adjusted for your new lifestyle as an expat.

 

Moving to another country is a major step to take, and it would be wise to ensure you have protections in place – from life insurance to critical illness cover and income protection – to ensure security for you and your family should the worse happen.  

 

7. Accessing your money as a British expat in Portugal

 

 

It sounds like an obvious question to ask, but how will you pay for everything in Portugal?

 

How easily you can access your money and pay for things will be a key factor in ensuring your transition to living in Portugal goes as smoothly as possible.

 

While you may want to keep your UK bank account for convenience, using it in Portugal could prove costly as you will be at the mercy of costly transfer rates and currency exchange rate fluctuations. It’s better instead to open an international bank account that can accommodate cross-border payments and transfers in different currencies.

 

A local Portuguese bank account is also useful, particularly for day-to-day spending and expenses like household bills. Opening a bank account in Portugal is relatively straightforward, although make sure you research the process and what you need to do beforehand so you can prepare any relevant documents. Look for banks that offer expat-friendly features, such as English-speaking services.

 

8. Accessing Healthcare

 

 

On a short-term basis, a UK Global Health Insurance Card (UK GHIC) entitles you to medically necessary healthcare in Portugal for free or at a reduced cost. However, you will need to make a plan for long-term healthcare as a British expat in Portugal.

 

The country does have a national health service – the Serviço Nacional de Saúde (SNS) – but it is not entirely free. Rather, you must pay ‘user fees’ (taxas moderadoras) for services such as prescriptions and GP appointments.

 

To access public healthcare in Portugal you must become a legal resident of the country. If you are retired and receive a UK state pension then you may be entitled to public healthcare paid for by the UK via the S1 form.

 

However, in the beginning of your residency in Portugal it’s likely you will need to secure private health insurance. This is mandatory for certain visas (like the D7, which requires a year of health coverage), but it is also a wise choice regardless of your circumstances. It can sometimes take a while to register with Portuguese state healthcare, and private health insurance will ensure you are adequately protected. This is particularly important if you’re moving with your family or are older and need the security of on-demand healthcare.

 

9. How safe is Portugal?

 

 

Rates of crime are very low in Portugal and it is ranked as one of the safest countries in the world. British expats in Portugal generally encounter no problems – from walking alone at night to sexual harassment of women – and it’s considered a low-risk country to visit and live in.

 

10. Shopping in Portugal

 

 

The familiarity of your favourite British stores and products can be very comforting, and it can be challenging when moving to a new country to lose your preferred brands and retail outlets.

 

Expat communities in Portugal are more likely to have shops that stock UK items and products so if this is important to you consider moving somewhere a lot of British people already live. Alternatively, moving to a large, cosmopolitan city like Lisbon will likely offer better variety when it comes to shopping and more international products.

 

11. Cost of living in Portugal

 

 

One of Portugal’s main attractions for expats is that it offers a much lower cost of living than many other countries in Europe. True, bigger cities will be more expensive than rural areas, but overall you should have plenty of disposable income once you’re living in Portugal.

 

This is dependent, however, on creating a budget for your new life as a British expat in Portugal that covers all of your income and outgoings. Research prices and costs for your destination in Portugal – from food and drink to utilities, fuel and so on – and speak to a financial advisor who will assess all of your income streams and present you with a realistic picture of what you can spend in Portugal. Part of this should include a generous financial cushion to cover unanticipated costs during the moving-in period.

 

12. Education in Portugal

 

 

If you have school-age children then education will be a major consideration when relocating to Portugal.

 

Portugal’s education system includes both public and private schools. The country’s public schools can vary considerably in quality so it’s essential you research in depth before making your choice, although there are some highly regarded public schools that will be seen as better than their private counterparts. In any public school the curriculum will be taught in Portuguese. This may suit younger children who can adapt more easily but may not be suitable for older children.

 

There are plenty of private schools in Portugal, many of them faith based. Private schools tend to have smaller class sizes, a good range of extra-curricular activities and excellent facilities. Although this doesn’t necessarily mean better academic results, so parents should do their homework thoroughly.

 

The third option that many expats choose is an international school. These will offer a range of curriculums, such as British, American, German and French, taught in a number of different languages including English. Education standards are generally high, and can provide a familiar learning environment that will be especially helpful if your children are older. There are many international schools in popular expat areas such as the Algarve, Lisbon and Porto.

 

13. Making friends in Portugal

 

 

It’s understandable that the likes of housing, employment, schooling and so on will take precedent when planning your move. But don’t neglect the social aspects of establishing residency in Portugal. Moving to a new country means you will have to create a new circle of friends from scratch, which can be challenging. When choosing where to live, think about amenities such as restaurants, bars, cultural venues and sporting facilities – larger cities will be better for this. Consider taking up a new hobby or pastime that will help you make friends. If your Portuguese language skills are basic, look in expat-friendly areas with big English-speaking communities, like the Algarve. 

 

14. Speaking a new language in Portugal

 

 

As a popular place for British expats, it’s no surprise that English is widely spoken in Portugal, but moving to and living in the country will nonetheless be much easier if you invest time in acquiring at least basic Portuguese skills. Self-study and language classes will help you learn essential phrases and commonly used words very quickly. Attending language exchanges once you’re settled in Portugal is another great way to develop fluency.

 

It does take time, however, to learn a new language. When it comes to important things such as your financial and tax affairs, or purchasing property, ensure that the professionals you’re dealing with speak both Portuguese and English.

 

15. Establishing Tax Residency in Portugal

 

 

Educate yourself on the rules that trigger tax residency in Portugal.

 

Finanças, the Portugal tax authorities, will deem you tax resident if you spend 183 days or more in Portugal within a 12-month period. Even if you spend less than 183 days a year in the country you can still be considered a tax resident if you own a Portuguese property that is seen as your permanent home.

 

The UK-Portugal double tax treaty has a number of ‘tie-breaker’ rules to determine residency if your tax status is unclear. These will cover the location of your permanent home, where your finances are based and where you habitually live.

 

16. Financial advice for British expats in Portugal

 

 

When you establish residency in Portugal you will need to review your financial planning.

 

Even if you have a fruitful and productive relationship with your current financial advisor, it’s likely that a UK-based professional will not be authorised to advise clients who are tax resident in Portugal.

 

It would be prudent instead to seek a new financial adviser licensed to service clients based in Portugal and the EU. In particular, look for an advisor with extensive experience in advising expat clients, with knowledge of both the UK and Portugal tax systems. They will be best place to help you craft a financial strategy that will optimise your relocation.

 

17. Cashflow analysis

 

 

Just because it’s typically cheaper to live in the Portugal than in the UK doesn’t mean you should be cavalier about your outgoings when living in Portugal. Your financial advisor can use refined cashflow analysis tools to draw up an accurate budget that will let you maintain your standard of living as well as comfortably cover any outgoings, regular and unexpected. By using interchangeable variables like tax rates, future income, size of investment, investment returns, life expectancy and likely inflation rates, they can tell you how long your savings, investments and pensions will last.

 

18. Working in Portugal

 

 

British expats in Portugal who need to work should have plenty of opportunities. Many international companies are choosing to base themselves in Portugal, with Lisbon in particular becoming a hub for start-ups.

 

Portugal’s new digital nomad visa for remote workers offers another route to employment. Just make sure you speak to a financial advisor to avoid any tax liabilities that may arise from living and working in two jurisdictions.

 

Make sure you spend plenty of time job searching before the move and in those first few months of living in Portugal. It would be wise to put some extra money aside in case you do take longer to secure a role.

 

19. Opening a bank account in Portugal

 

 

In many countries, opening a bank account as a foreigner can be quite difficult. This is not the case as a British expat in Portugal, where it is relatively straightforward process.

 

The process can vary from bank to bank, but generally when opening a bank account in Portugal you will need a NIF (Número de Identificação Fiscal) – a Portuguese tax number, as well as proof of identification, proof of address, proof of income or employment and sometimes a minimum cash deposit.

 

Mobile banks that let you manage your money online are popular choices with expats as they’re quick to set up, often using just a smart phone. Popular examples include Revolut, Openbank and N26.

 

20. The removals process to move to Portugal

 

 

Given that you may not have secured a permanent home by the time you move to Portugal and could be living in temporary or rented accommodation for the first few weeks or months, consider packing lightly. Take a thorough inventory of all of your possessions and decide what is truly worth taking with you, and what should be sold or donated before you leave.

 

It’s essential you select a reputable removals firm with experience of international relocations. Obtain quotes from several different firms, and once you make your final choice make sure you book far in advance of your move. 

 

21. Learn about NHR in Portugal

 

 

One of the prime attractions for British expats in Portugal is the country’s Non Habitual Resident (NHR) regime.

 

It’s a fiscal scheme that offers an array of tax benefits to expats in their first 10 years of residency in Portugal. The benefits include:

  • Income tax at a flat rate of 20% for those who earn income or are registered self-employed.

  • 10% tax on pension income. For those with a QROPS or QNUPs pension, it’s possible to pay even lower tax if your income benefits are correctly structured. Pension income can be paid using a ‘temporary annuity’ where you specify a fixed income sum for three, five or 10 years. The pension trustee then issues confirmation that the income is paid as a temporary annuity. Under Portuguese law, this means that only 15% of income is subject to income tax. As NHR pension tax is 10%, this produces an effective tax rate of just 1.5%. Be aware that it is not always possible to structure annuity payments in this manner.

  • Income from a foreign source is exempt from Portugal tax. (it’s also possible for foreign sourced dividends to be tax-free in both Portugal and the UK due to the ‘disregarded income’ rules for non-resident UK citizens.

 

Speak to an experienced financial advisor with knowledge of cross-border financial planning and familiarity with both UK and Portugal tax. They will advise you on how to apply for NHR status and ensure you make the most of the benefits on offer.

 

22. Review your financial planning in Portugal

 

 

As well as making the most of Portugal tax benefits such as NHR, you should review your overall financial and investment strategy. This is particularly important if you will depend on investments and pensions for income when living in Portugal.

 

Your savings, investments and pensions may not be as tax efficient in Portugal as they were in the UK and a good financial advisor with experience in servicing British expats in Portugal will be able to offer guidance and tailored solutions that take into account how much you are prepared to invest, your level of risk tolerance, investment horizon and your accessibility to capital.

 

If you plan on retaining links to the UK in the form of business interests or property then it’s worth consulting a financial advisor on any possible tax liabilities. There is a double taxation agreement between Portugal and the UK, but expert advice is needed to ensure you avoid paying any financial penalties, which can be extensive. 

 

23. Pensions in Portugal

 

 

For those retiring in Portugal it’s crucial that you reassess your pension planning.

 

Any pension income you receive as a British expat in Portugal will be subject to tax but transferring your UK pension benefits to an overseas pension scheme such as a QROPS (Qualifying Recognised Overseas Pension Scheme) can bring tax benefits.

 

For those whose pension is close to exceeding the UK lifetime allowance (currently £1,1073,100), transferring your pension to a QROPS means you will avoid any penalty taxes from HMRC (up to 55%) if your pension surpasses the LTA as QROPS are not subject to such restrictions. Your pension will be able to grow tax-free and undisturbed from then onwards.

 

Bear in mind that your pension trustees will need to be registered in a white-listed country such as Malta – this is a common choice as the country has a double taxation agreement with Portugal. If you use a Malta QROPS then there are other benefits. For example, once you pass away, lump-sum death benefits paid to your beneficiaries are tax-free, even if you die after the age of 75 (under UK law such death benefits would still be subject to tax). No taxes would need to be paid in Portugal either if the beneficiaries are direct family members. A QROPS, as mentioned earlier, can also enjoy favourable tax rates under NHR if structured correctly.

 

Please be aware that within a QROPS you can only avoid UK tax liability for any UK-based beneficiaries if, on your death, you have been a UK non-resident for at least five complete tax years.

 

Another point to consider is that Portugal does not recognise the tax-free element of pension commencement lump sums (PCLS) for all UK pensions and QROPS. A PCLS (usually 25% of the pension value) is tax-free in the UK, however, so it’s something you should consider doing before you move and while you are still a UK resident.

 

A QNUPS (Qualifying Non-UK Pension Scheme) is suitable for non-UK tax residents who have investable wealth outside of an existing pension arrangement. It must be set up before the age of 75, and it cannot accept UK pension transfers but must instead be funded from non-pension assets. Benefits from a QNUPS will be taxed according to the laws of wherever you are tax resident. In Portugal, if you are registered under NHR then this is a rate of 10% or if structured correctly through the use of annuities as low as 1.5%, as outlined earlier.

 

For those concerned with reducing their UK inheritance tax liability, any contributions into a QNUPS will be removed from your estate for UK inheritance tax purposes. This still applies even if you did eventually return to the UK. However, it is very important that IHT mitigation should only be considered an additional benefit rather than the main reason for establishing a QNUPS. While there is no limit to the amount that can be contributed into a QNUPS, it must be set up as a genuine retirement vehicle and contributions should be reasonable and in line with your future income requirements, overall wealth, earnings and age. If your contributions are judged disproportionately large then they may fall foul of UK income tax anti-avoidance provisions. With this is mind, it's essential that you speak to a financial advisor before opening a QNUPS.

 

An international SIPP (Self Invested Personal Pension) is another viable pension option for British expats in Portugal. A UK-based and FCA regulated scheme for non-UK residents, it offers flexibility when accessing funds and allows the bearer to hold a variety of assets in multiple currencies. Income can be paid directly into your Portuguese bank account. However, as it is UK based the LTA cap will still apply and tax is due on any death benefits your beneficiaries may receive if you die after the age of 75.

 

Whatever you decide, speak to a financial advisor first as pension planning can be complicated and difficult to understand.

 

24. Estate planning and UK inheritance tax

 

 

As covered earlier in this feature, residency in Portugal will not protect you from UK inheritance tax.

 

If your estate will be in excess of the UK nil band rate then speak to a financial advisor about ways you can minimise your IHT liability. This is something you should do while you are still a UK tax resident.

 

Measures you could take include making gifts to your children and/or making additional contributions to your pension arrangements.

 

25. Selling your UK home and capital gains tax

 

 

When moving to Portugal many expats will sell their home in the UK to fund the purchase of a new one in Portugal. Under UK law you are exempt from UK capital gains tax if you sell your home before exiting the UK. This tax relief is still available nine months after leaving the UK. However, after this you may be exposed to CGT in both the UK and Portugal on the sale of the property.

 

Portugal grants CGT tax relief if you reinvest the proceeds from the sale into another main home in Portugal or anywhere in the EU/EEA that has a tax treaty with Portugal, within a certain time period.

 

There is also now an additional capital gains tax relief for those either retired or aged 65 and over. Capital gains are exempt from tax if you reinvest the funds from the sale of your main home into a suitable insurance contract or pension fund within six months of selling.

 

If you sell your UK property whilst a Portuguese resident with NHR status then you will pay capital gains tax in the UK and not in Portugal. If you sell your UK home as a Portuguese resident but ­­you do not hold NHR status then you may have to pay capital gains tax on the sale of the property in both the UK and Portugal.

 

Relocating to another country is a huge undertaking and one you should not underestimate. Extensive planning is essential, so speak to a relocation expert and financial advisor today to strategize and ensure your move to Portugal is successful.


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