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Moving to Portugal – How to Avoid Taxes on Your UK Pension Scheme


Moving to Portugal – UK Pension Transfers to Portugal

Are you moving to Portugal or thinking of retiring in Portugal? You will have to move fast to avoid the next expat tax in Portugal, which the Portuguese government is imposing from 2018. The nex 10% expat tax will likely come into effect from January 1st, 2018. If you move before 2018, you can apply for Non-Habitual Residency in Portugal and avoid the 10% flat rate tax for a 10 year period. UK pension transfers also take up to 3 months to move, so the clock is ticking.

If you are moving to Portugal, you should consider moving your UK pension to Europe to avoid paying both UK and Portuguese taxes. Thanks to QROPS rules, this is possible. If you want to retire abroad, you should consider a UK pension transfer to Portugal. Whilst you cannot transfer to a Qualifying Recognised Overseas Pension Scheme (QROPS) in Portugal itself, you can transfer your pension to Malta in Europe. You then avoid paying any UK taxes on your pension scheme and there is no tax in Portugal on your pension for 10 years thanks to the Non-Habitual Resident scheme that Portugal has in place to attract retirees to move to Portugal. For those moving to Portugal, we recommend looking into moving your UK pension to a QROPS in Malta for tax and currency reasons. You can move your pension to EUR which will make your pension income more stable in retirement and there is no tax for the first ten years you are resident in Portugal on your QROPS pension scheme.

2015 heralded the year of “pension freedoms” in the UK, and whilst you can take your entire pension pot now, you could be stuck on an “emergency” tax code meaning you pay up to 45% income tax on your entire pension pot.

British pensioners who want to buy another house for their kids or as an investment may make an even poorer choice.

Pensioners will get hit by their highest rate of income tax which could be up to 45%. They will then pay income tax on their rental income, they will pay up to 28% capital gains tax on any increase in the value of that property, they will pay stamp duty when they buy the house and their money is now part of their estate which means they will pay 40% tax on death if they are above their inheritance tax (IHT) allowance threshold.

A better solution may be to transfer your UK pension to a QROPS in Malta and invest your pension wisely in mutual funds or ETFs. The compounded return will help your pension beat inflation. The QROPS means no tax for ten years and moving your pension to EUR will protect your pension income from currency movements.

A QROPS in Malta also allows full flexible drawdown access similar to the UK, so after age 55, you can decide to either take your pension as an annual income or as series of lump sum payments.

Moving to Sunny Portugal

moving to portugal

Moving to sunny Portugal might be the best decision you will make as a retiree for health and a life of lower cost living in the sun, but is there a way to make your pension last longer, avoid all UK taxes and retire by the beach with clear blue skies and fresh air? You would think that is too good to be true, but it is possible thanks to QROPS and Portugal’s tax regime to attract expat retirees, the Non-Habitual Residence rules.

Portugal has new laws which mean if you are not previously a resident, you can move to Portugal and there is no income tax on pensions for the first 10 years you stay there, before Jan 1st, 2018.

After 2018, a flat rate tax of 10% on foreign pensions has been suggested by the Portuguese government.

Under UK rules, you may still pay up to 45% tax in the UK on death after age 75 on any lump sum left. Seeing as most people don’t die at age 75 and rudely take at least another 10 years before popping off, your family could see a bill upon death.

Furthermore, any pension you cash in from the UK, once outside your pension becomes part of your estate. So, if you take all your pension monies out in the first 10 years, suddenly your whole pension pot becomes part of inheritance tax. That is because, you may be taxed on your worldwide bank accounts, pensions, funds, property and other assets on death if you are a British national. It is very difficult to become non-domicile as that means cutting all ties with the UK.

Is there another way to avoid tax on death? Yes…

UK Transfers to a Malta QROPS for Portuguese Residents

If you are a British expat retiring abroad and you are a resident of Portugal, you can transfer your UK pension to a Qualifying Recognised Overseas Pension Scheme (QROPS) in Malta. Malta is another EU country which has a Double Taxation Agreement with Portugal.

But, unlike Portugal, Malta is an English speaking country. Furthermore, it is a recognized onshore financial jurisdiction with strict regulations and insurance.

Moving to Portugal – Why transfer a UK pension to Malta as a Resident in Portugal?

  • There is no tax in Malta on your pension as a Portuguese Resident
  • There are no UK taxes if you move your pension to Malta whilst living in Portugal
  • No tax on death on your pension as long as you retire abroad
  • No income tax in the first ten years you are resident in Portugal if you apply for NHR
  • You can choose the currency of your pension. Many British expats in Portugal prefer to move their pension to EUR to stop their pension income fluctuating with exchange rates
  • You can invest in the shares, mutual funds, unit trusts, pension funds, etc of your choice

Moving to Portugal | Popular Destinations in Portugal

Faro, Porto and Lisbon are all popular British expat destinations if you are moving to Portugal, but the Algarve is by far the most popular. There is a 15 mile stretch of beaches between Ferragudo and Amercao de Pera. But, if you want to escape the expat concentration then the centre of Portugal may be more appealing.
Portugal has more than 300 warm sunny days per year on average.

The Algarve is a haven for sailors, with 7 marinas along its southern Atlantic coast. The Algarve is a great place for swimming, is a world-class surfing destination, a plentiful spot for deep sea fishing, body-boarding, diving and even enough wind for kite-surfing.

Pensioners in the Algarve experience a high quality of life. I recommend you check out this website for pensioners living in the Algarve. Portugal has one of the lowest costs of living in Europe, so your pension income will go a lot further.

Click here to find out how much it costs to live in Portugal. Typically, you will pay under 5 GBP for a meal and under a pound a beer in an inexpensive restaurant. You can rent a three bedroom out of town apartment for around 90 pound a week.

Portugal is still ranked amongst the top countries in the world for Britons to seek retirement.

It is three times cheaper to buy property in Portugal than in France. It also has the third largest British expat community in Europe.

You can click here to learn more about the food and activities in Portugal.

What is the Portuguese NHR Programme?

The new Portuguese non-habitual resident (NHR) status gives the opportunity to those who wish to become residents in Portugal to benefit from a favourable taxation of foreign income, with an exemption of taxation in Portugal and a possible double exemption, both in Portugal and in the country where the income is paid.

There is zero tax on pension income for the first ten years you live in Portugal. This can also extend to if you set up a business or start a new profession receiving income, as well as tax-free interest, and dividends.

The only requirement to benefit from this preferential treatment is to become a Portuguese tax resident, not having been a tax resident in Portugal in the previous five years. The NHR status can be maintained for 10 years.

Moving to Portugal | Tips for British Expats Resident in Portugal

If you are a British expat and you want to move to Portugal, you will need to think about transferring your pension offshore. If you draw your entire pension income in the UK, you will not only pay your highest rate of income tax, but the monies would then form part of your estate and attract 40% IHT.

However, you can transfer to a QROPS in Portugal where you can avoid the death tax after 75. 100% of your pension gets passed on to your loved ones upon death as a cash lump sum and if you take your income within the first ten years, you avoid any taxes on your pension.

If you have a larger pension pot and want to pass it on without a death tax or IHT, you can just park the bulk of it in a QROPS which can be passed on IHT-free to your partner or children.

Portugal Address:

QROPS Specialists
Street: Rua Correia Teles, 28 A
Postcode: 1350-100 – City: Lisbon
Region: Lisbon
Country: Portugal

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