QROPS in Portugal: Attraction of the non-habitual residence scheme

Retired British expatriates can’t transfer their UK pensions to a QROPS in Portugal as there are no local providers on the HM Revenue and Customs (HMRC) list of recognised overseas pension schemes. However, they can transfer to a Malta QROPS and receive retirement benefits in Portugal. In 2006, HMRC passed legislation to comply with an EU directive that pensions be free to move across Europe’s borders. As a result, individuals retiring to Portugal can take their UK pension savings with them.

The Non-Habitual Residence Scheme in Portugal

The Portuguese Non-Habitual Residency (NHR) programme has proved highly popular for those looking to relocate and benefit from the generous tax advantages. Portugal has taken an adventurous and forward-thinking position with this new regime, hoping it leads to a more vibrant economy.

Those who qualify can look forward to paying a flat tax rate of 10% on foreign pension income and withdrawals, including lump sums. They can also avoid Wealth Tax and pay no tax on non-Portuguese investments. Tax on drawings from a QROPS in Portugal is also at a rate of 10%.

It is relatively straightforward to qualify for NHR tax treatment. The first step is to ensure you are legally resident in Portugal. Most EU/EEA nationals have this right automatically. For those outside the EU/EEA, there are two ways of obtaining residency status:

  1. Go through the normal visa route.
  2. Apply for a Golden Visa.

The ‘normal’ route is available to anyone, although it’s a long process involving an extensive list of requirements. The Golden Visa route is streamlined; it is also more costly. There is an automatic qualification for the NHR scheme for those who become fully tax-resident in Portugal i.e. people who spend more than 183 days per annum in Portugal.

At the EU level, there has been some resistance to the NHR scheme from the other Member States. This is because the EU generally dislikes internal tax competition, which gives one country an unfair advantage over others. This has resulted in a recent change to the pension income rule. New applicants are now subject to 10% tax for ten years, whereas those with HNR status are immune and continue to pay zero tax.

The Non-Habitual Residence Scheme for UK Nationals post-Brexit

The situation for UK nationals is unclear as the withdrawal agreement and implementation period are still incomplete. Those applying before the end of 2020 can use the EU/EEA route; there is nothing in the Double Tax Treaty (DTT) to prevent a successful outcome.

The position regarding those who can’t move before the end of the year is less clear. When the UK leaves the EU and EEA, people wishing to relocate to Portugal will no longer have the automatic right to do so via ‘freedom of movement’. As things stand, the DTT will allow UK nationals to qualify for the NHR regime. However, from 2021 onwards, the only paths available to establish full tax residence will be the slower ‘normal’ method or the Golden Visa route. Many more people will likely choose the Golden Visa route, as it is a fast-track passage to NHR qualification.

The Golden Visa Program

Golden Visa schemes are designed to attract High Net Worth (HNW) and Ultra HNW individuals to live in a country. Individuals can qualify for a Residence Permit in various ways, including investing in businesses, research, transferring capital, and through private equity funds. The most common method of obtaining a Golden Visa for those who also want to create full tax residency is the purchase of a residential property. The property value must be at least €500,000, and the individuals can’t have been tax-resident in Portugal in the previous five years.

If an individual successfully applies for a Golden Visa, membership of the NHR scheme is granted automatically. However, it is important to reiterate that individuals must also fulfil tax residency criteria and spend a minimum of 183 days in Portugal.

Impact of the Overseas Transfer Charge for QROPS in Portugal

EU residents can transfer one or more UK pensions into a QROPS without taxation, while transfers outside the bloc attract the UK overseas transfer charge of 25%. There are expectations that the UK could extend this tax within the EU/EEA at some stage. So anyone considering a transfer should move quickly!

Take Professional Advice

Moving country permanently is a big decision that should be carefully considered. As such, it is essential to use a suitably qualified professional to help you through the process. A cross-border independent financial adviser can play a significant role in helping you restructure your finances, ensuring you maximise opportunities and minimise tax liabilities.

Please contact us for information on QROPS in Portugal and the attraction of the non-habitual residence scheme.