Irish retirees considering a move to Portugal
There has been quite a lot of interest from Irish clients looking to retire somewhere tax efficient, close-by and sunny. Many look at Spain or France but once they do their research then Portugal becomes of far more interest.
Portugal not only has a lot to offer in terms of culture, sunshine, beaches, golf, food but also a fantastic tax regime to help make the decision easier. Tens of thousands of Irish, British and other Northern European professionals and retirees have been moving to Portugal for the past 10 years to avail of all these life enhancing benefits.
Top 5 Tax Benefits if you become a resident of Portugal
- Many foreign (non-Portuguese) sourced income sources such as Irish or UK pension income, deposit interest, dividends and UK rental income at 10% tax rate.
- The Portuguese Non Habitual Residency (NHR) status can reduce income tax to 20% rather than the Irish higher rate of 52% on income over c. €70,600
- This allows new Non Habitual Residents the potential to receive some foreign income like gains from UK property and Irish/UK pensions at 10% tax rate since 31/3/20
- Inheritance Planning can lead to significant reductions in Irish Capital Acquisition Tax for beneficiaries not living in Ireland.
- Consultancy fees could be significantly reduced to c. 10% using an EU company structure.
Irish to Portuguese residency?
To move residency you need to ensure you do not spend 183 days or more in the Republic of Ireland (ROI) in a year or 280 days or more taking the current and preceding years together. Please speak with someone in Imperius Wealth to ensure you don’t breach these rules as we know life is more complex than this.
Once you physically move to Portugal and get residency, Irish revenue will require you to complete Declaration of Residence outside the Republic of Ireland (EO0194O) form.
Non Habitual residency (NHR)
About 10 years ago Portugal introduced the Non Habitual Residency rules or NHR. This means certain high level/value working professionals will be taxed at an income tax rate of 20%.
Portugal wishes to attract as many high value professionals as possible with these lower tax rates like Ireland wants to attract foreign companies with low tax rates. They prefer to earn 20% income tax and VAT revenue on these professionals and retirees rather than nothing. This is
only available to people moving to Portugal for the first time.
How do qualify for NHR status?
It’s easier than you might think to qualify. You need to;
- Not have lived in Portugal for past 5 year
- Buy/Rent a property
- Professional occupation
So what’s the OPPORTUNITY for Irish Pension holders?
Income from many Irish pensions are treated as emoluments/salary payments and can be taxable in Ireland forever. Chapter 23 & 24 of the Irish Pension Manual are very important when planning on retiring outside of Ireland.
It is possible to significantly reduce tax on Irish Pension income if you become resident in Portugal, all completely detailed within the Ireland/Portugal Double Tax Agreement.
This can potentially reduce the tax on your pension to 10%.
Imperius Wealth can help you analyse your specific situation when it comes to retiring outside of Ireland. All you need to do is email mike.shannon@imperiuswealth.com
Why is Malta relevant for Irish retirees considering Portugal?
Malta offers flexible pension benefits for all EU residents especially those that move to Portugal, Spain or France. Malta acts as an EU hub for pension giving a variety of benefits.
Malta is also an English speaking country within the EU but focused on delivering pan EU pension expertise similar to what Ireland and Luxembourg do for the Funds industry. These EU friendly and secure pension trustees can help you live off your pension at low tax rates for as long as you need.
Pension Client Example
Irish Resident with a €2.5m
Pension
First €200k is tax free.
Next €300k is taxed at 20%
This equals €60k tax on the first €500,000.
The rest is taxed at marginal income tax rates.
Estimated effective tax rate (ETR) is 35% on the remaining €2m.
This is €700,000 Tax.
Total tax on the full €2.5m is €760,000
There are also further taxes called the imputed distributions from age 60 onwards which increase the total tax payable.
Imperius Wealth Ltd. can help you reduce these taxes dramatically with effective cross border financial planning.
•NHR’S – 10% TAX
•ACCESS FROM AGE 55
•30% IMMEDIATE ACCESS POTENTIALLY
•10% TAX ( €200K- €500K) LUMP SUM
•FLEXIBLE DRAWDOWN OVER 10 YEARS
•INHERITENCE TAX FRIENDLY
•LOWER COST & EASY TO IMPLEMENT
The 4 Main types of Pension
- Pension Annuities – the income may be paid without deduction of PAYE subject to obtaining a PAYE Exclusion Order from Irish Revenue.
- Occupational Pensions such as Defined Contribution or Final Salary/Defined Benefit can be structured to ensure tax efficiency and full tax compliance. Malta can be an option to optimise the pension.
- Pre-Retirement private pensions such as PRSA’s, Self-Administered and Personal Retirement Bond’ need to be looked at individually as some are taxed in Ireland forever & others not.
- Post retirement pension such as ARF’s/ Vested PRSA’s – These are considered emoluments/salary income by many EU countries and there can be an unnecessary withholding tax in Ireland at 25% if not planned correctly.
- European Pensions Income – (Not Irish or Portuguese) – Not taxable in Ireland and could avail of the 10% NHR tax rate.
Moving your pension to Malta can give you favourable tax treatment on your pension.
https://www.revenue.ie/en/tax-professionals/tdm/pensions/chapter-23.pdf
There are some common pitfalls though
- Transfer of pension fund to ARF/AMRF before leaving Ireland
- Revenue does not consider distributions from an ARF/AMRF or PRB (Buy out bond) to be a pension payment as such.
- Distributions will be subject to Irish PAYE and claiming a refund from Revenue is difficult.
- Transfer of occupational pension fund to an ARF/AMRF on retirement will not allow you to transfer the occupational pension fund to an overseas scheme before leaving for Portugal.
It is incredibly important to seek pension advice with Imperius Wealth before you make any financial or residency changes. Taxation of pension benefits is constantly changing so please get in touch for up to date information.
Conclusion
Portugal offers more than just sunshine and Albariño. Tens of thousands of EU nationals from mostly Northern Europe are taking advantage of the tax and investment benefits. Of course many Irish decide to dip their toes in initially by looking at property first and then long term financing secondly. This is a common mistake.
It never stops amazing me that some people make massive life decisions without fully planning ahead. This is particularly true with pensions and retirees who have a slow wind down into retirement and are more focused on moving to sunnier climates. Seeking the right advice can add 30%+ to the value of your pension. Seems crazy not to avail of this massive opportunity.
Imperius Wealth Ltd are group of UK Chartered Wealth Managers & Central Bank of Ireland regulated Certified Financial Planners (CFP®) all with over 20 years’ experience advising retirees with cross border financial & pension planning.
Please contact Mike Shannon mike.shannon@imperiuswealth.com (Ph. 00353879808376) with any immediate questions and we would be delighted to give you some guidance and send you some further tax guides you’ll find helpful.
