Portugal and Pensions
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I tentatively looked at this a few years ago and was put off digging deeper 'cos personal issues at the time, but also understood the mechanism was via a QROPS?
That 'loop hole' was blocked by HMRC effect March 2017 so you the had to pay 25% tax on the out going SIPP transfer to the qrop sheme?
I'd love to believe there is still a legal route to this?0 -
Malthusian wrote: »As others have touched on, the main barrier to using this as a tax strategy is that you actually have to become Portugese. Not that there's anything wrong with being Portugese, but most of us choose a country to retire to first and look at the tax situation second, whereas this is looking at it the other way round.
If you later move back to the UK (e.g. because you want to be closer to your children in your less active years, miss being able to speak English to everyone, etc) then the tax advantage is significantly lower, because now you have a load of money in your own hands which is subject to Inheritance Tax whereas if you'd left it in the pension, it would be free of Inheritance Tax. It would be taxable in the hands of the beneficiary if you die after 75, but hey, your children could always move to Madeira...
There are always swings and roundabouts, especially when interacting with two tax systems or more. This is one of the most obvious examples where the swings generally work in your favour and even then there are lots of ifs and buts.
There are many places in Spain and Portugal that you don’t have to speak the lingo.
Personally I’d quite like to learn the native language even if at a basic level.
Some of us aren’t worried about IHT.
But yes I agree that you can’t pick somewhere purely down to tax.
As it Happens Portugal has a lot going for it as well, but agree the tail shouldn’t wag the dog.0 -
I tentatively looked at this a few years ago and was put off digging deeper 'cos personal issues at the time, but also understood the mechanism was via a QROPS?
That 'loop hole' was blocked by HMRC effect March 2017 so you the had to pay 25% tax on the out going SIPP transfer to the qrop sheme?
I'd love to believe there is still a legal route to this?0 -
No it's not through QROPS. Your pension stays in the UK. You draw the income & pay tax (or not) in Portugal.
OK, I'm not being argumentative - just trying to understand the journey:
Assuming you've taken your 25% tax free already, then you become resident in Portugal.
Does HMRC somehow tell the SIPP provider not to deduct UK tax on w/ds to your o/seas account? Is that an 'N' code?
If so, would you need to convince HMRC you're UK non resident?
Could you do that if, for example, you still own UK property?0 -
ratechaser wrote: »the idea of being able to draw down my pension completely over 10 years tax free does definitely sound encouraging.0
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Malthusian wrote: »As others have touched on, the main barrier to using this as a tax strategy is that you actually have to become Portugese.0
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I tentatively looked at this a few years ago and was put off digging deeper 'cos personal issues at the time, but also understood the mechanism was via a QROPS?
That 'loop hole' was blocked by HMRC effect March 2017 so you the had to pay 25% tax on the out going SIPP transfer to the qrop sheme?
I'd love to believe there is still a legal route to this?0 -
You can do it all in one day if you like.
Yes understood, however as others have mentioned, there are potential IHT issues at play here so it's a case of balancing pulling everything out in one go versus how long I might want to maintain residence there.
But as I mentioned, I've only just scratched the surface of this one, no idea if it would be seen as aggressive tax avoidance if the day after I gained resident status, I pull out a million quid tax free and then move back to England! I could imagine HMRC would have a keen interest in what then happened to that money...0 -
I have spent a lot of time doing amateur research into moving abroad (the term is amateur hence everything I then write may or may not be correct)
When you move abroad you tell HMRC you are not tax resident and as such you go onto a NT tax code (apart from government pensions which are taxed in the UK but you can deduct this from the local countries tax that you pay, however it will used to calculate your bands - however see the Cyprus notes)
I looked at QROPS but the amount of charlatans and fees out there make it too dodgy for me
Portugal - the NHR tax regime of 0% tax on income not "earned" (ie pensions) in Portugal for the first 10 years is very attractive. (after 10 years you go onto the normal tax regime). The new free health law based on residency is also very attractive. The cost of housing (for us) far outweighs this benefit. (housing in the algarve - you won't get much change from 200k upwards and rents are high as well). The EU naturally don't like a tax free haven in the EU and the Scandi countries (I think) have clamped down on this (so no NHR for the Scandis - wonder whether the UK will do the same)
Cyprus - choice of low tax rates or 5% tax on your pension. Again very attractive. No free health care until you have a S1 (ie of pensionable age). You might want to consider this if you have a government pension as there is a new change to the tax treaty which means your government pensions can be taxed under the Cyprus regime. Property is not as expensive as the Algarve. But they do drive on the correct side of the road, English is spoke widely and they have 3 pin plugs .
Spain - mainland (the islands are far too expensive for property for us) - tax is quite high (they also have a weird thing going on with tax allowances - the calculation is interesting). Property in inland Almeria is cheap as chips (560 pcm rent or 140k gets you a three bed villa and pool). Council tax is minimal (200 per year). Same as Cyprus - no health insurance until you get an S1. (there is supposed to be changes to healthcare but the regions don't or won't implement it). But there is a massive gotcha on the CGT front. If you don't invest all the proceeds from a house sale you pay CGT on it. This inadvertently catches people from the UK who sell their house move to Spain and pocket some of the proceeds. (If you spend more than 183 days in a country in a year you are tax resident, so the UK sale if done in the same year as you moving may end up in Spanish CGT).
Also premium bond winnings are taxed as income!
France - you pay social security costs on pension income. However you can choose to split your income between a couple - calculate tax on both and then add back together (works nicely when one couple earns most of the money).0
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