It is critical that you meet the deadline because this is a “one-off” opportunity – if you do not get it, you lose it. As you will appreciate, sometimes things are laid-back in Portugal and can take some time, so make sure you act now if you have not already.
Unsure whether to apply?
We have met people that were told not to apply for NHR by some legal/accountancy professionals or have come to that conclusion themselves based on their online reading.
Our general recommendation is that you should apply for NHR, even if you think you don’t need it e.g. because you don’t have foreign dividend or rental income etc. because you do not know how your personal position might change over the next 10 years. It is best to have it and not need it, than need it and not have it.
Having said this, there are some rare cases where applying for NHR would have resulted in the individual being in a worse-off tax position, so it is always best to speak to several suitably experienced people.
How to apply
Applying for the Non-Habitual Residence (NHR) scheme is relatively simple, and you can do this yourself or, as we would recommend, through a local accountant or lawyer to ensure it is done correctly.
Once granted it will run for a consecutive period of 10 calendar years.
You have NHR: how to get the maximum tax benefit?
The more complicated part of the NHR process is doing the planning around the scheme.
NHR is generally considered a ‘no brainer’ as it rarely leads to a worse position however seeking advice is crucial because there are steps to take, some pre-moving to Portugal and others during your stay in Portugal to truly make the most of the 10-year planning window.
An example would be to utilise any tax-free cash entitlement from pension schemes whilst still in the UK but deferring taking income from the pension until resident in Portugal, at lower tax rates. Another example would be changing the remuneration strategy from the salary and dividend method, common in the UK, to solely dividends in Portugal. These are very simple but often overlooked planning angles that can result in considerable tax savings.
There are also pitfalls to avoid such as specialist rules when taking dividends during the non-UK part of a “split year” or not tax-sheltering investments to work during and post-NHR – these can be expensive mistakes.
Delays at SEF can impact your tax position
We are dealing with many new clients in the country who are in “no man’s land” from a tax point of view due to delays in their visa applications. This is where they have been granted initial resident permits to come to Portugal e.g. as part of the D7 visa application, but have not yet completed the second stage of the visa application, which is the stage when they become legally resident here.
They are therefore in the position that they have left the UK tax system and have become tax resident in Portugal by exceeding the Portuguese threshold of 182 days. But, from a practical point of view, they cannot be considered truly tax resident due to the mechanics of the Portuguese tax system i.e. you can only be tax resident after establishing residency.
Being aware of these quirks in the interactions between two different tax systems and practicalities can create opportunities for planning. With our extensive experience in cross-border planning, we can help with the transition period, which is often the most crucial part of your move.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6 CII) and Tax Advisers (ATT) with nearly 20 years of combined experience advising expatriates in Portugal on cross-border tax and financial issues. Find out more at www.spectrum-ifa.com or contact us at +351 289 355 316 or firstname.lastname@example.org.
31 March 2023: NHR application deadline - Act quickly
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