Living as a UK expatriate offers a thrilling and rewarding experience, yet it necessitates careful financial planning, especially concerning taxes related to investments, pensions, and other assets. Expatriates must adeptly navigate the intricacies of tax laws and regulations to make well-informed choices, optimising their investments whilst adhering to legal obligations. Effective management of investments is pivotal for UK expats to mitigate capital gains tax (CGT) implications. CGT is a tax imposed on the profits from selling or disposing of an asset that has appreciated in value. While UK tax residents are subject to CGT on gains worldwide, non-residents typically face CGT only on UK assets. However, for residents in
Portugal, there’s a potential for CGT on assets as well, making the tax landscape intricate to navigate.
Strategic timing and structuring of asset sales are essential to optimise one’s tax position. Leveraging tax-efficient investment accounts and considering exemptions, reliefs, and allowances can significantly reduce CGT liabilities. Skybound plays a crucial role in aiding UK expatriates to navigate expat complexities related to investments, pensions, and estate planning. We excel in devising investment strategies aligned with an expat’s financial goals and tax situation, analysing how investments in specific jurisdictions can inhibit or increase returns.
For UK expats considering Portugal as their residence or currently residing in Portugal, understanding the country’s tax regime is imperative. Eligible expats will qualify for the NHR scheme (Non-habitual residency). Under this scheme, expats benefit from favourable tax treatment, potentially enjoying tax exemptions on foreign-source income for a specific period. However, a comprehensive analysis of current assets and an understanding of existing tax exposures are necessary to optimise retirement planning for expats. In the context of UK expatriates in Portugal eligible for the Non-Habitual Residency (NHR) program, it’s vital to note their exemption from income tax on any income derived from abroad. Nevertheless, it’s crucial to remain aware that assets located in the UK may still be subject to taxation. Inheritance Tax (IHT) remains a significant tax implication that cannot be overlooked, even as a non-resident in the UK.
IHT status for non-residents can be determined through domicile status, a legal concept for individuals who are non-UK residents. Domicile refers to a person’s permanent home or the country they consider their permanent residence, where they have significant ties or connections. The UK operates under a domicile-based tax system, wherein an individual’s domicile status determines the extent of their UK tax liability. Non-UK residents are typically categorised into two domicile statuses: domicile of origin and domicile of choice. Domicile of origin is initially assigned at birth and is usually tied to the domicile of the
individual’s father. Domicile of choice, on the other hand, can be acquired by demonstrating a clear intention to reside in a different country permanently.
Understanding one’s domicile status is essential for effective tax planning and ensuring compliance with the tax regulations of both the UK and the individual’s country of residence. Seeking professional advice from a UK accountant is advisable to navigate the complexities of domicile rules and optimise tax implications accordingly. For tax purposes, a non-UK resident’s domicile status plays a vital role in determining the scope of their UK tax obligations. Individuals with a non-UK domicile are subject to tax on UK-based income, while foreign income and gains are usually taxed based on remittance or arising basis, depending on the domicile status.
When it comes to financial planning once domicile status is understood, navigating the abundance of options around retirement planning can be easier. Understanding the jurisdiction of your investments and rearranging any existing investments will be crucial in retirement planning optimisation and tax efficiency. For expats residing in Portugal, Ben Thompson offers a complimentary team call with himself, where he can outline the ins and outs of retirement planning and tax-efficient strategies. Please feel free to reach out to his senior associate, Kane Millard at kane.millard@skyboundwealth.com.
