# Double Taxation



## LooseBoots (Sep 5, 2014)

We are planning to move to Portugal next Spring.

Our only source of income at the moment is a private pension i have paid in the U.K. by a U.K. bank. I am 2 years away from receiving the U.K. State pension.

As U.K. passport holders we don`t need a tourist visa, do we? But if we stay and buy property will i automatically be taxed by Portugal on my U.K. pension?


Sorry, new to all this.


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## Waterdog (Oct 24, 2011)

As an EU citizen you don't need a visa and can stay as long as you like.

In the simplest terms, if you spend over 183 days per annum in Portugal, you will be regarded as a resident for tax purposes and will be required to file a tax return in Portugal but as the UK and Portugal have a tax treaty, you will not be required to pay tax twice so it may pay you to continue to have your private pension taxed in the UK.

It is a complex subject and depends on individual circumstances and aspirations so you would be well advised to take specialist advice.


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## LooseBoots (Sep 5, 2014)

*Double taxation*



Waterdog said:


> As an EU citizen you don't need a visa and can stay as long as you like.
> 
> In the simplest terms, if you spend over 183 days per annum in Portugal, you will be regarded as a resident for tax purposes and will be required to file a tax return in Portugal but as the UK and Portugal have a tax treaty, you will not be required to pay tax twice so it may pay you to continue to have your private pension taxed in the UK.
> 
> It is a complex subject and depends on individual circumstances and aspirations so you would be well advised to take specialist advice.


Thank you very much for your swift reply.
I will certainly seek out a specialist when we move over. I suspect once I start getting my U.K. State pension in 2 years it may be better to switch to Portuguese tax.
Not sure if the 10 year exemption would be beneficial but that probably would be another question for the specialist.


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## Waterdog (Oct 24, 2011)

LooseBoots said:


> Thank you very much for your swift reply.
> I will certainly seek out a specialist when we move over. I suspect once I start getting my U.K. State pension in 2 years it may be better to switch to Portuguese tax.
> Not sure if the 10 year exemption would be beneficial but that probably would be another question for the specialist.


Again the 10 year exemption is out side my knowledge area but others may be able to help.

UK Government pensions are always taxed at source in the UK but other pensions in Portugal so it is possible to qualify for both the UK and Portuguese exemptions at the same time and so boost your total tax free allowance.

Because I am on the move, do not have property in Portugal and never spend long enough in Portugal I am taxed solely by the UK. However, I am aware that many Brits who have property in Portugal and spend more than 183 days in country, still elect to pay UK rather than Portuguese income tax. They just file an annual Portuguese tax return but don't pay tax. Must stress I am out of my comfort zone on this one. Again others on this forum may be able to help.

When in Portugal we spend time in Lagos.

Where are you planning to buy?


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## LooseBoots (Sep 5, 2014)

Waterdog said:


> Again the 10 year exemption is out side my knowledge area but others may be able to help.
> 
> UK Government pensions are always taxed at source in the UK but other pensions in Portugal so it is possible to qualify for both the UK and Portuguese exemptions at the same time and so boost your total tax free allowance.
> 
> ...


Not sure yet. We thought originally Silver Coast but will try to get as near as we can to Algarve for the warmer weather?


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## TonyJ1 (May 20, 2014)

Portugal taxes is based on residence. If you spend 183 days or more in the tax year in Portugal, or you main residence is in Portugal, then you are subject to taxes on your worldwide income. It does not matter whether the income is paid into an offshore account, these rules apply. This is similar in most jurisdictions, i.e. most countries tax liability is based on residence and on worldwide income.

However there is a double tax treaty between Portugal and the United Kingdom (you can do a search for a copy on the internet) which governs which country may tax the different types of income that may arise (pensions, dividends, salaries, interest, rents, etc).

Currently there is a scheme to encourage high net worth earning individuals and pensioners to relocate to Portugal, where in some cases they may earn income completely tax free or at rates considerably lower than normal residents. This scheme, commonly known as the 'non habitual residency scheme', is applicable for a period of 10 years, provided that the application is submitted timeously (by 31 March of the year subsequent to taking up residence) and provided that the tax payer was not a Portuguese ordinarily resident for Portuguese tax purposes in the 5 years prior to taking up residence. 

In some cases tax payers can therefore enjoy 'double' non taxation for this 10 year period.


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## Talagirl (Feb 24, 2013)

Very interested in this topic as friends living in Cyprus are considering moving to mainland Europe and as their only income is their UK State Pensions they are trying to find out if they would have to pay any income tax if they moved permanently to Portugal as they have visited many times on holiday and it would be their first choice. In Cyprus each individual can earn up to €19,500 per annum before having to pay any tax. Just wondered if Portugal has a similar system. Have read a bit about habitual residency and maybe they would be eligible for that ie the first 10 years in Portugal would be tax free. All advice most welcome.


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## Waterdog (Oct 24, 2011)

My knowledge is TRNC based rather than the south but because it don't exist The TRNC doesn't has its own forum. For the record, like Turkey, The TRNC is not part of the EU.


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## TonyJ1 (May 20, 2014)

Talagirl said:


> Very interested in this topic as friends living in Cyprus are considering moving to mainland Europe and as their only income is their UK State Pensions they are trying to find out if they would have to pay any income tax if they moved permanently to Portugal as they have visited many times on holiday and it would be their first choice. In Cyprus each individual can earn up to €19,500 per annum before having to pay any tax. Just wondered if Portugal has a similar system. Have read a bit about habitual residency and maybe they would be eligible for that ie the first 10 years in Portugal would be tax free. All advice most welcome.


The general tax rules is that the annual income tax return is a joint return (to determine the taxes payable, the income is split in 2). There is a deduction of approximately €4100 from pension or salary income before the tax tables are applied. the tax tables run from 14.5% for income below €7,000. For income between €7,000 and €20,000 the rates applicable is 28.5%.
Once the tax tables are applied, generally tax payers have a number of credits to set off against the tax as calculated above. Generally the credit is limited to €250 but can be higher depending on medical expenses and other credits.

So, in the case of your friends, assuming they earn say £114 per week, which would be £5,928 - approximately €8,200. The tax calculation would be roughly as follows:

Income €8,200
Pension deduction €4,100
Subject to taxation €4,100
Tax at 14.5% €594.50
Less Credits - say €250.00
Tax payable €244.50

This would be per tax payer

Saying this, your friends should be able to apply to get on the 'non habitual residency scheme', the saving over 10 years would still be €2445 for each of them. Against this, you would have to set off the cost of a professional handling the process (hopefully a lot less than the saving, otherwise not worth doing).


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## Talagirl (Feb 24, 2013)

TonyJ1 - I have sent my friends this information and they have asked me to thank you for such a detailed reply. The example you have given has made it so much clearer for them. 

I think South Cyprus must be the only country in the EU where they would not have to pay any income tax!


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