QROPS Portugal – UK Pension Transfers Abroad for British Expats living in Portugal
QROPS Portugal Rules for 2017/18 – British expats living in Portugal or wishing to retire in Portugal can now transfer their UK pensions abroad to Europe to avoid UK taxes. British expats living or retiring in Portugal can take advantage of their offshore status and transfer their UK pension offshore to Malta, which is in the EU and will no longer have to pay UK death taxes or UK income taxes on their pension as long as they remain tax resident abroad. They also would pay zero income tax in Portugal for the first ten years they remain living in Portugal as long as they apply for Non-Habitual Residency (NHR) and there would be no tax on death as long as the member remained resident abroad outside the UK, so 100% of the pension pot can be passed on to family or whomever you choose tax-free on death.
Stop press: Portugal will now introduce a flat rate expat tax of up to 10% on foreign pension income in January 2018.
“Move your pension before January 2018 to lock in 0% income tax on your pension as a tax resident in Portugal.”
You can read more about the expat tax in Portugal here.
The main benefit of a QROPS is avoiding up to 45% tax upon death after age 75 that the UK imposes as well as avoiding UK income taxes as long as you remain abroad. There is no income tax on your pension for the first ten years you are in Portugal. You can also move your pension into EUR rather than GBP, so that your pension income doesn’t increase and decrease with currency fluctuations. This will help to protect your pension income and make your pension pot more stable. It also gets your pension out of the UK before Brexit occurs.
Portuguese expats who have worked for a UK company and built up a substantial private pension can also move to a QROPS to avoid up to 45% tax upon death in the UK and UK income taxes which are typically 20% – 45%.
Thanks to the Non-Habitual Residents (NHR) tax scheme to attract foreigners to come and live in Portugal, you can transfer your pension to a QROPS in Malta, a European pension scheme, and pay zero income tax on your Malta QROPS in Portugal for ten years and zero tax on death. Please note, after January 2018, NHR’s will likely be taxed at a flat rate of 10%. Those who have NHR before 2018 are locked in at a zero rate.
“A QROPS in Portugal attracts zero income tax for the first ten years you are resident in Portugal.”
There are also other advantages: for a period of 10 years after you move to Portugal, you only pay a fixed income tax of 20% if you decide to work in Portugal; Your QROPS won’t be taxed at all; your pension will be paid out gross, so no that means no tax in Portugal, Malta or the UK on your QROPS pension scheme. A totally tax-free pension pot. That is why Portugal is becoming such a popular retirement destination for British expats looking to retire abroad in sunny Portugal.
There is no double taxation for pension incomes, for employment or for self-employment income obtained abroad if you become resident in Portugal.
QROPS Portugal | Applying for EU Residency in Portugal
Both EU/EFTA and non-EU residents are eligible to apply for permanent residence in Portugal after five years. The process is more straightforward for EU/EFTA citizens; you can read more here regarding Portuguese immigration policy for EU nationals and family.
New QROPS rules for 2017 now mean that you must remain in the EEA (Europe or Norway, Switzerland, Lichtenstein or Iceland) for five years after you transfer your pension to Malta. If you leave before five years, your pension may be subject to a 25% exit tax which can be imposed retrospectively. After five years, however, you are in the clear. So, if you are moving to Portugal, you must remain in Europe for five years after the transfer to avoid a tax penalty later down the line.
A Malta pension allows full flexible drawdown similar to the UK. You do have the ability to “cash-in” your pension, but we strongly advise against it. A pension plan should last you until death and provide you with a stable income.
Furthermore, if you cash in your pension, your entire pension pot could be subject to UK inheritance tax (IHT) of 40%. Also, there would be exit fees for leaving the QROPS early. However, it is an option for expats who have other pension arrangements and spare cash for retirement planning already.
QROPS Portugal – Why Move to Portugal in Retirement?
Nearly 50,000 Brits live in Portugal. Portugal is defined as a Mediterranean climate and is one of the warmest European countries – the annual average temperature in mainland Portugal varies from 13 °C (55.4 °F) (in the north) to over 18 °C (64.4 °F) (in the south and on the Guadiana river basin). The Algarve, separated from the Alentejo region by mountains reaching up to 900m in altitude has a climate similar to that of the southern coastal areas of Spain. Portugal has 12 national parks and 9 natural reserves. Portuguese cuisine is diverse. The Portuguese have a culture of good food and throughout the country, there are myriad good restaurants. Portuguese wines have received international recognition since the times of the Roman Empire.
Portugal is a developed country with an advanced and high-income economy, with a very high Human Development Index. It has the world’s 19th-highest quality-of-life, according to the Economist Intelligence Unit, and it is one of the world’s most globalized and peaceful nations. It is a member of the European Union and the United Nations, as well as a founding member of the Latin Union, the Organization of Ibero-American States, OECD, NATO, Community of Portuguese Language Countries and the Eurozone.
Many British workers who go over to Portugal with their companies decide to retire in Portugal. A QROPS helps steady their income by denominating it in EUR as well as avoiding the 55% tax upon death that the UK government imposes.
The Benefits of a QROPS Portugal
What are the benefits of a QROPS Portugal Pension Transfer for British expats in Portugal?
• Avoid UK income tax as long as you remain resident outside the UK
• Avoid UK dividends tax
• Avoid UK capital gains tax (CGT)
• Avoid up to 45% tax upon death after age 75
• Currency choice. You can choose to have your pension transferred to a QROPS denominated in USD, EUR or keep it in GBP
• Have the ability to make higher returns with freedom of investment
• Family Protection: Upon death, the entire pension pot gets passed on to your nearest and dearest
• Security: The pension is held in a secure jurisdiction such as Malta, an EU country which has a Double Taxation Treaty with Portugal, so your pension avoids UK tax and is paid gross.
What is QROPS Portugal?
A Qualifying Recognized Overseas Pension Scheme (QROPS Portugal) allows your UK pension to be transferred offshore to reduce your tax burden. Effectively, you will no longer pay UK tax on your pension whilst you are offshore and after 10 years of living offshore, the reporting requirements to HMRC cease. A QROPS in Malta is the recommended QROPS destination for British expats in Portugal.
If you are living in Portugal at the moment, you can take advantage of your offshore address in order to move your UK pension into a QROPS to avoid further UK taxes down the line. A QROPS is an appropriate legal tax planning vehicle to avoid UK taxes if you are considering living or retiring abroad.
QROPS Portugal | Malta QROPS for British Expats in Portugal
- Avoids UK income tax of 0% – 45% and up to 45% tax upon death in the UK after age 75
- Flexible drawdown available – you can take your pension as income or a series of lump sum payments
- Due to the Double Taxation Agreements between Portugal and Malta, your pension is paid out gross with no tax taken off. Then you can remit to an offshore bank account or into a bank account in Portugal at which point you pay income tax in Portugal.
- 100% of pension pot can be passed on as a lump sum upon death to any named beneficiaries you want – normally your spouse or children
- Much wider range of investments available. You can purchase most shares, ETFs, bond funds, hedge funds, etc or just sit your pension in cash.
Tax on a QROPS Portugal
- There is zero tax on death on a QROPS as a tax resident in Portugal.
- There is zero tax on capital gains on your QROPS pension as a tax resident in Portugal.
- There is zero income tax on your QROPS for the first ten years you are tax resident in Portugal if you have applied for the NHR scheme before Jan 1st, 2018
Income Tax Rates in Portugal 2017/18
You pay tax on your worldwide income if you spend more than 183 days per year in Portugal. Non-residents pay a flat rate 25% on income. However, this isn’t imposed on your QROPS in Malta.
British expats living in Portugal over 183 days per year pay:-
Income (EUR) Progresive Tax Rate (%)
0 – 7,000.00 14.5
7,000 – 20,000 28.5
20,000 – 40,000 37
40,000 – 80,000 45
You can find the latest Portugese income tax rates from the Governo de Portugal’s web site.
Are There Any QROP Schemes in Portugal?
All of the QROPS in Portugal on HMRC’s QROPS list are for group pension schemes, so you can’t transfer your UK SIPP, private pension scheme or final salary scheme to a QROPS in Portugal itself, but you can transfer your pension to Europe via Malta and the pension trustees all speak English.
You can move your QROPS to Malta for tax & currency optimisation. Malta is an EU sovereign state with a double taxation agreement with Portugal which means your QROPS is paid out in Malta gross, free from tax and there is zero tax for the first ten years you are living in Portugal.
What happens to my QROPS if I retire outside of Portugal?
You still avoid any tax upon death if you retire outside the UK. Your income tax circumstances would depend on the country you retire to and it’s tax relationship with Malta. If you ever return to live permanently in the UK, you have the ability to transfer your pension back to a UK Self Invested Pension Plan (SIPP) or you leave your pension in a QROPS in Malta, but pay UK income taxes. Your death tax may be reduced in the UK by leaving your pension in the QROPS.
28A Rua Correia TelesStreet
QROPS Portugal article written by QROPS SpecialistsQROPS Portugal | UK Pension Transfer Guide for Portugal by Richard Malpass