post-brexit

Post-Brexit solutions to retention of EU rights

POST-BREXIT SOLUTIONS TO RETENTION OF EU RIGHTS: HEALTH, TRAVEL AND PENSION

 

As the Brexit discussion and debate in the UK continues to rage, with little clarity as to the practical implications of the country’s departure from the EU, many people simply want to understand what this means in terms of the everyday aspects of their lives, we are going to have a look to the post-brexit scenario.

Over the last four decades or so, citizens of the UK have become accustomed to easy travel within Europe, seeking work and holidays outside their home country without a second thought. It has become normal to use the health care system of a foreign country knowing that the bill is covered by the UK, whether under the short-term EHIC program or a longer-term agreement between the UK and other EU countries when living abroad. And when nearing the end of a working life under grey skies, many decided to live and receive their pensions in a sunny foreign country, while benefiting from inflationary adjustments just as if they were at home.

In 2020, at the end of the so-called “transition” period, the current way in which UK citizens live and travel throughout Europe will end. Huge uncertainty remains as to which, if any, of the benefits will remain, and in what form. Under the provisional agreement reached by the UK and the EU, UK citizens will be entitled to remain in the country in which they have settled, but currently no onward movement rights are guaranteed. Although the payment of pensions abroad will continue, there is no guarantee that the UK government will increase pensions paid to UK expats in Europe in line with inflation, with a possibility being that these could be frozen as they are for UK expats in many Commonwealth countries such as Australia, Canada and New Zealand. With Brexit generating a decidedly anti-EU sentiment, it is very possible that the standard will be a freezing of pensions paid abroad as a way of addressing some resentment within the UK that pensioners abroad have a more privileged lifestyle than retirees in the UK.

In order to address many of these concerns, the best solution appears to be to “lock in” current rights ahead of the UK’s effective departure from the EU. On the assumption that the transition period is agreed as currently forecast, anyone considering a move to a country such as Portugal has until the end of 2020 to plan and execute their move.
As there is insufficient time for anyone to consider citizenship unless they have a family or religious link (Sephardic Jews have direct citizenship possibilities for historical reasons), the key aspects of health, travel and pensions are likely to be resolved via residence.

post-brexit

The UK is and will remain (regardless of the outcome of the referendum) outside the Schengen area and therefore border controls (both outbound and inbound) will continue to exist. With Brexit, additional documentation such as a physical visa form or “visa waiver programme” such as that implemented in the US, may come into effect. But other than more time and paperwork which has unfortunately been the trademark of international travel in recent years, the UK and Europe will still wish to encourage cross-border tourism. So travelling for a holiday may become more bureaucratic and even costly, but will still happen. Likewise, multi-country travel within the EU will remain easy as few internal border controls exist.

From a procedural point of view, Brexit is likely to place the UK in the same category as those applying to reside in Portugal, whose origin is outside the EU. Such applicants need a visa to enter the country and to remain as residents. However, Portugal has a visa category for expat pensioners. As long as UK nationals meet the criteria, generally minimum income levels around twice the minimum wage, we do not expect access to be more difficult for UK nationals than it is for any other non-EU nationals.

What is likely to become more difficult is staying indefinitely, or even settling, in a European country which is not the original one to which you move. The best solution in this regard is to opt for residence of your preferred country before March 29, 2019. Acquiring permanent residence of an EU member state will automatically allow you the right of movement to other EU countries, but this does not appear to be the case if you move during the transition period.

If, for whatever reason, you are unable to move in time, then there is always the option to acquire residence in the same way as third countries (outside the EU) do at the moment. Two broad possibilities exist: either residence by investment, the most common of which is to purchase real estate starting typically in the €400,000-500,000 range (some categories are lower), under a programme called the Golden Visa; or to apply via a means-tested application, equivalent to about twice the national minimum wage – a solution which applies to retirees. Again, either of these solutions will provide the right to move freely within Europe, but will not provide settlement rights in another EU country. This will only be possible if citizenship is obtained (typically in the 6th year after the start of residence).

Notwithstanding the above, the hard reality is that many people who move abroad, do so not only for lifestyle reasons, but because they need to manage a pension pot which is under increasing pressure on different fronts. UK residents have suffered a double whammy as a result of Brexit. The cost of living has increased as a number of items including food and imported goods have seen steep price growth, coupled with international travel becoming more expensive. A combination of the above factors may drive UK nationals to seek alternative residence options in Europe.

For retirees, thinking ahead means considering what social care options are available. While all of us would like to live independently in our own homes for as long as possible, the reality is that health can be unpredictable and many will find themselves needing support or care. The cost of quality rental-based independent senior living, assisted living or care home in Portugal is around one third to one quarter of a comparable solution in the UK. A purchase of a suitable property will be less than half of the cost of a comparable property in the UK. Although limited options for expats currently exist, a few groups and developers are investing now to ensure that their solutions will accompany the evolving needs of an ageing expat population.

With a lifestyle of much greater quality, English widely spoken, lower costs of living, better healthcare than the UK, less expensive private insurance, lower taxes and no need to return home for essential services, there really is no reason why retirement in Portugal is not only a viable, but a very attractive option.

Portugal is among the world’s top 10 retirement destinations, and the Algarve has been voted the “Best Place in the World to Retire” four years in a row. All those considering EU residence beyond Brexit, and certainly those considering their retirement options, should find someone who understands not only Portugal’s NHR and Golden Visa programs, but also understands the underlying real estate market (including long-term rentals) which is a fundamental component of either program. These two programs can form, if properly structured, an essential and effective part of any retirement planning.

golden years A spectacular beach at Marinha

Planning for the Golden Years

Planning for the Golden Years:
the modern-day “Gold” rush in the California of Europe

 

Anyone who is nearing or at retirement age (also known as the golden years) wants to protect his or her hard-earned pension. Many want to do this in a safe country with a warm climate, friendly people and a great lifestyle.

Equally, many people from outside Europe aspire to have free access to, or live on, the “Old Continent”. As do those who have a highly mobile lifestyle but want a base in a low-tax environment.
Now one country has made it easy to do all the above.

Racking up the accolades

World’s and Europe’s Leading Destination 2017. 3rd safest country in the world. 7th friendliest people. 12th best healthcare. World’s best golfing destination. Europe’s best beach destination. Lowest cost of living in Western Europe. Lowest property purchase taxes of any Southern European country. Near the top of the rankings in the Quality of Nationality Index meaning its passports makes it among the best options for visa-free travel.
Portugal. The ugly duckling turned swan.

A few years ago, no one wanted to touch it. The IMF was bailing it out. The English were calling it names – one of the PIGS. Even the Prime Minister publicly encouraged its youngsters to emigrate (interestingly, many are now returning, with half a decade of additional international expertise to offer their land of birth).

golden years

Now, fastest growing European economy in Q1 2017. Eight years of record-beating tourism numbers. New host of the Web Summit, the world’s premier IT and emerging technology investment conference. Land of the birth of the President of the European Commission, President of the Eurogroup, and the UN Secretary General. 10th largest exclusive economic zone in the world, 97% of which is sea. A country punching above its weight.

Whimsical waves: a replica caravel sails over tranquil waters along the pristine Algarve coastline near Benagil And home to Europe’s most popular Golden Visa program.

The most golden of Golden Visas

Why, you may ask, if Spain has several times more visitors than Portugal and there are more Spanish-speaking people in the world, and if Greece has a Golden Visa investment level half that of Portugal, has this small country on the Western edge of Europe become the most popular destination for those looking for residence in Europe via investment?

golden years

The reasons for the approximately €2 billion invested in this program to date are varied and many:

⦁ In addition to the Golden Visa itself, the Portuguese nationality and passport, are highly sought-after. With visa-free travel to 157 countries, a Portuguese passport is among the world’s top 5 for hassle-free travel;
⦁ Portugal has 79 double tax treaties signed with other nations. This is relevant because it underpins the country’s highly successful NHR (Non Habitual Resident) program, which broadly allows eligible applicants to pay no tax on any foreign-earned income (including pensions);
⦁ Portugal has no wealth taxes (except for a newly implemented real estate tax for individual property ownership greater than €600K (based on fiscal value which is generally lower than market value or purchase price) or joint ownership above €1.2 million)
⦁ There is no inheritance tax and owning property in own name is very efficient
⦁ Property is sold freehold, with rare exceptions. The land registry is among the most reliable in the world. Property is fully documented and protected
⦁ Permanent right to reside after 5 years (with no requirement to reside, unlike Spain and Greece)
⦁ Easy family aggregation providing the family with the full right to reside, work and study
⦁ Very few nationalities are “excluded”: it is the analysis of the person’s individual circumstances and history, together with the source of funds, which are relevant to any application.
The Portuguese Residency by Investment (better known as the Golden Visa) was launched by the Portuguese government in October 2012, but only saw its first approved candidates in the second half of 2013. It is a fast track method for foreign investors from non-EU countries to obtain an authorisation to reside in Portugal and can be summarized as follows:
⦁ Permanence requirements include 1 week in the first year and two weeks in every subsequent two-year period. Applicants are free to travel within the Schengen vis travel area
⦁ First entry must be via a valid Schengen visa or visa waiver program
⦁ Applicants have the right to work if they wish
⦁ Citizenship and a Portuguese passport can be obtained after 5 years of residency. A basic Portuguese language test must be passed
⦁ Applicants must not have a criminal record, be banned from entering the country or be flagged in the Schengen system
⦁ Initial application fees are around €5,200 per family member with two-yearly renewals at 50% of that value. Legal fees can be just as high but many smaller solicitor firms and other expert partners are able to deliver this service for a much lower cost – in some cases absorbing it into their conveyancing fee. Find a local partner who can make suitable introductions to a range of experts.
The most popular route to investment is via the purchase of real estate, under the following rules:
⦁ Standard investment is €500,000, sourced from funds brought from outside Portugal without recourse to credit or debt financing. Any amount above the GV threshold may be financed
⦁ Any type of real estate qualifies. Shared or co-ownership applies as long as the minimum threshold is met per investor
⦁ A reduced level of €350,000 for approved rehabilitation projects in properties of at least 30 years. The criteria for qualification are strict and for most investors this is not a practical solution
⦁ Either of the above levels maybe reduced further by 20% if located in a low population density area. An excellent opportunity exists in key municipalities in the country, one of which is discussed in this article
⦁ The Golden Visa investment can be sold after the 5 year period

Setting out your stall and claiming your stake

Just as those who trekked across the US to find fortunes in California depended on staking their claim to the right plot of land, so too selecting the right region for investment is crucial in Portugal. Factors such as ease of resale, likelihood of appreciation, and rental yields, must be taken into account before deciding where to invest. Crucially, if the property is to also become a family holiday home or a permanent place for work or enjoy your golden years, then a match to holiday requirements for the family, to airports with good international connections or to a place which offer a balanced lifestyle and cost, must be factored.

golden years

Experience has shown that most, if not all, who visit it will fall in love with something: those from Canada and the US love the authenticity combined with first-world infrastructure; those from Latin America see the gateway to Europe as an opportunity to have a foot in Europe while retaining traces of home, including a similar language; those from Asia are impressed by the family-friendly environment and the openness to multiple cultures.

But beware Portugal’s beguiling charms: not every region is a match for every investor. Tourism is one of Portugal’s largest industries and exports and there is a reason why the Algarve and greater Lisbon are, respectively, the two largest tourist destinations in the country.

Sunshine is a main factor. And the further north one goes, the less you see it, especially in the rainy winters. So even if you are enamored with the Douro valley, spanned by myriad bridges and traversed by port-wine bearing barges, consider whether you will accept gray skies in the winter and less intercontinental airline connections.

People. Another major driver. While you may fall in love with an inland area such as the beautiful Alentejo, with its world heritage sites and golden fields of barley, it is an area with small villages and with low population density. Great for buying cheaper properties but not great to obtain a yield. Greater travel distances. Less English spoken. Very quiet in the winter.

Planning your approach

Keep your options as open as possible. If you are looking for a Golden Visa and residence, then stay as close to the purchase limit as possible. That way, you ensure that you are able to resell or, if you need to keep the property, you will stand a better chance of not being out of pocket.

golden years

Look for reduced investment Golden Visas, avoiding areas which have seen huge price increases. Look for regions which might still be undervalued. And most importantly, if you want to generate revenue, look at where the source of demand is.

David vs. Goliath?

Lisbon. Nation’s capital and center of government and power. A fantastic weekend destination, with plenty of historical monuments, culture, gastronomic options, cheap travel and excellent beaches not far away. Great for workers, especially mobile ones. Pretty good for retirees if you don’t mind the hills, are happy to take safe and cheap public transport or hop in an equally inexpensive cab. Best range of healthcare options.

golden years

One problem: a booming real estate market that is starting to look very much like a bubble. Think Golden Visa. Add exploding Chinese middle market. Overlay with a €500,000 Golden Visa limit. Net result: any owner of a 2-bedroom apartment in the city thinks they can ask for €500,000 from a foreign buyer. Local buyers don’t even bother trying to buy those types of properties anymore.

The Algarve. One of the world’s top tourist destinations. Portugal’s number 1 spot for both national and foreign visitors. Great for sports lovers: walkers, ramblers, surfers, golfers. Excellent for fish and sea food lovers, but then again, so is Lisbon. OK for culture. Good set of public and private healthcare options.

Two advantages: much better bang for your buck in real estate terms. And better weather.

Algarve: Best Place in the World to Retire

The tourism crown jewels are the country’s southernmost province, the Algarve, with beaches of golden sands, cliffs of golden light and sea of azure that many mistakenly think is on the Mediterranean. Even the cool Atlantic seems to be warmer in the Algarve, voted four years in a row “Best Place in the World to Retire” by the Overseas Retirement Index.

golden years

The Algarve has mostly been overlooked until now as a destination for the Golden Visa, primarily for three reasons:

⦁ Those nationalities showing most interest to date, namely Chinese, Angolan, Middle East and some Brazilian, wanted urban locations;
⦁ Others who liked a more suburban feel, such as the remaining Brazilians and South Africans, have mostly been shown Cascais by local agents. Few investors remained at the €500,000 level due to the upmarket location and property type to be found here;
⦁ The Algarve lacked (and to some degree continues to lack) sufficient inventory of quality new build or refurbished standard. Although the general quality of build is good, the first wave of GV buyers were looking for new properties. As the country has seen new construction at a standstill since the 2008-9 crisis, there was simply insufficient inventory available.

Research and knowledge: your pick and shovel

If the residence visa is your main aim, stick to your objective. Numbers first. Many beautiful villas can stretch your budget by hundreds of thousands of Euros. And there is always a more beautiful and more perfect property to be found.

Choose a partner who will be aligned with your objectives and budget. Consider entering into a buyer agreement with someone who can work for you rather than earning their fee from the seller.

golden years

If you are thinking of settling, ensure you take a Discovery Tour. Get an experienced company to show you the areas and examples of real estate within each, before taking the plunge. Rent before you buy if you are not sure. Ensure that you have found a place where you can live in the quieter winters and the busier summers.

Be aware of the regional subtleties:

⦁ Higher yields are more difficult to achieve in the greater Lisbon area because prices are higher (even though rentals are also higher)
Properties in the Algarve come furnished, increasingly to a high standard. Lisbon properties are unfurnished unless specifically set up for short-term lets
⦁ Lisbon is a year-round destination even though the winter is slower than the summer. Either weekly lets or annual lets are the preferred model. The Algarve still experiences great variations between summer and winter. But as properties are furnished, weekly summer rentals can be combined with monthly winter lets for maximum return.

his is realistically only possible in the Algarve.

Eldorado: combining location with value for optimal Golden Visa value

With Lisbon overpriced and good deals increasingly difficult to find, the Algarve should at least be on investors’ short-list. The key should be to look for good value for money opportunities. The Algarve is a narrow strip of land where most of the development is concentrated near the coastline. The main factors for optimal value in the region are proximity to the coast (15 minutes maximum, less is better), distance to golf course (again, near the coast and you are guaranteed to be within 15 minutes of one) and being south of the region’s A22 highway.

golden years

When overlaying this with quality real estate or modern or contemporary construction, many of the region’s properties are priced well above €500,000. Well known for the extremely exclusive (and equally pricey) real estate is the Golden triangle which encompasses Quinta do Lago and Vale do Lobo, where two bedroom apartments are easily between €650,000 and €1 million, and a 3 bedroom villa worth millions of Euros. Upmarket areas such as Vilamoura, Carvoeiro and the Lagos municipality are less expensive but all of them still require a minimum €500,000 Golden Visa investment.

Travel to the province’s western-most municipality, most famous for Henry the Navigator’s maritime school in Sagres and the country’s second most popular surfing location, and you will find an area of stunning natural beauty, of imposing cliffs, mile-long beaches and one of the country’s largest natural parks along the Costa Vicentina. Because its natural landscape is mostly untouched by large-scale development, the number of residents is still low.

Therein lies the opportunity for Golden visa applicants: in low- density population areas the investment threshold is reduced by 20%, to €400,000. In this region, some stunning Golden visa opportunities exist. Quality contemporary properties; resorts (including golf resorts) with multiple services; and amenities and well-located properties perched atop coastal villages, offer excellent opportunities in a region which combines natural beauty and proximity to wonderful beaches, with the benefit of the Algarve’s tourism growth.

golden years

The municipality continues to benefit from the Algarve’s eight years of record-beating tourism as well as the demand by permanent residents, many of whom retirees, for sunshine, great lifestyle and low taxes / cost of living.

Examples of the great Golden Visa deals on offer include a fully furnished executive 3 bedroom golf course villa, with shared pool, expansive golf views and access to a wide range of amenities including golf, on-site restaurants, spa, and tennis, for under €415,000. This property, well managed, can easily generate a gross yield of 6-7%. A smaller 2-bedroom property on the same resort with two years of guaranteed 5% revenue is for sale at €400,000.

Just down the road, luxury 4 and 5 bedroom villas on a leading eco-resort can be bought for between €400,000 and €500,000. It is also possible to “package” up several plots, complete with full planning, which can be held for later resale or used to build single-family villas or townhouses.

Finding residence, lifestyle and solid investment is very much possible if you know where to look! Enjoy your golden years the best and smartest way!

Annuity Failing You? FIXED-INCOME Care Suites

IS YOUR ANNUITY FAILING YOU?
CONSIDER INVESTING IN FIXED-INCOME CARE SUITES

It was the day after the referendum of June 23rd 2016 that I realised that my British Pounds would not buy me as much as the day before. In fact, about 20% less, although that has now “recovered” to 15%!

Suddenly, travelling to Europe, living my retirement in Europe and even making my hard-earned British pension stretch had just become 15% more difficult. And much less predictable than before. Worse, since the referendum, inflation in the UK has risen to around 3% which means that the pitiful returns the banks are giving us on our own money, typically less than 1%, are eroding our capital. Each year money in the bank is worth less.

There is a simple distinction between working life and retirement: in the former, we work for money, in the latter money must work for us so that we can enjoy our later years. Many retirees have been let down by underperforming annuities, a depreciating currency, and most recently higher inflation. All this means that the quality of life in later years is at the risk of getting worse. It is therefore crucial that everyone think seriously about how to protect and grow their retirement pot.

Expat retirees with a new life in Southern Europe still have family or financial links to the UK. Not everyone is comfortable severing all links with the UK. With Brexit looming, a majority of those retiring abroad are wondering how to ensure they retain rights and protect income in both the UK and EU.

Dealing first with the question of right of residence in the EU: even if no deal is reached between the UK and the EU, from a procedural point of view, a “cliff-edge” Brexit will place the UK in the same category as those applying to reside in Europe, whose origin is outside the EU. Such applicants need a visa to enter the area and to remain as residents. In countries such as Spain and Portugal a Golden Visa category exists which allow people to invest in exchange for residence.

While it may be difficult for expatriate residents to apply to be “new residents” in a country where they have lived for some time, it is very feasible for expats in Spain to seek, for example, residence in Portugal, with those who are eligible also applying for tax-free status, a way to protect and maximise pension payments. One of the criteria is not to have been resident in Portugal during the last 5 years.

Expat retirees will also want to make sure that their assets, savings and income in the UK are maximised. However, in later years, our appetite for risk (understandably) decreases. With this in mind, and with many financial groups admitting that annuities do not deliver viable long-term solutions, the search is on for alternatives.

One sector of the market presents interesting opportunities for capital protection and steady capital growth. A sector which most expats in Southern Europe understand: social care.

Currently care in the UK is privately funded until one’s estate is worth just £23,000 (this is under discussion). Care home places are limited, means-tested and include value of your home. Retirees often need to sell their home to fund care. Most residents in care homes have a life expectancy of a further 10-15 years, creating long waiting lists. Care home occupancy is currently running at almost 90% and fees average £700 per week.

FIXED-INCOME CARE SUITES

In the UK, 8 million people will be aged 80 or more, and 1 in 4 people will be 65 or more by 2050, double current levels. The failure of small care homes due to a number of factors including rising costs (which will be exacerbated when the UK leaves the EU), create knock-on effects leading to problems such as “bed blocking”. There is huge pressure on existing care homes and an urgency to create new care home places.

As a result, a number of companies have taken on the refurbishment of old or abandoned care homes, or are improving operating facilities.

This new wave has created the opportunity for individual investors to become part of the social care revolution. With investment levels typically in the £50,000-£100,000 range, this sector is accessible to most retirees with a pension pot.

For some it presents the opportunity to use their 25% tax-free draw-down in exchange for a fixed income which is much higher than an annuity. For others, it may make sense to release equity from a debt-free primary residence to ensure that assets are growing at a faster (and more predictable) rate than the currently stagnant housing market. For yet others, it may mean that some money released from selling a primary residence can be invested while the rest can be used to move abroad.

The returns from these investments range between 8-10% per annum, after costs, which is substantially higher than most other real-estate backed investments. This is a relatively low-risk investment given the demand described above. Importantly, it targets a sector which retirees understand. After all, we will all at some point need care.

With a fast-changing world, it is important that expat retirees consider not only ways in which they can efficiently manage their lifestyles abroad, but also protect their assets and sources of income in the UK. A combination of tax-free retirement abroad and fixed-income investments at home might just be the winning combination.

investment and retirement

Strategies For Investment And Retirement

STRATEGIES FOR INVESTMENT AND RETIREMENT IN A VOLATILE WORLD

 

It is perhaps fitting that I found myself writing this article about investment and retirement in the air between the UK and the EU. On the day of the referendum, I flew between the two regions. I, like millions of others, stayed up to learn how the rules of engagement of the last 40+ years were about to change. The last time I landed in Faro, I sat in the car and learnt how the government had continued its sustained and systematic increase of taxes, in particular singling out property owners.

So I am fully expecting more (unsettling) news when I land somewhere else…and true to form, I land in Spain where I hear that a minority government, which many say will be unable to govern, has finally been appointed. As I land in each different country, I cannot immediately predict what changes there will be nor how they may affect the business or its clients. Certainty: there is little of it.

Over the years, our approach to Portugal and the UK has been motivated by what I term positive investment and retirement: looking to the potential of each market. Now, with the barrage of negative news in Portugal, in particularly affecting tax, a huge dollop of uncertainty in the UK, and political and social uncertainty in the US, it seems sensible to adopt a defensive strategy to markets. Much criticism has been levelled at governments for failing to create a stable environment within which investors can plan and deploy their investment Pounds, Euros or US dollars (don’t hesitate too long if you have the latter!). In this article, I will explore two structural changes, one each in Portugal and the UK, which should make all seniors and potential retirees think about whether and how they intend to invest for their retirement.

For years we have promoted the benefits of long-term rentals, both as a flexible solution to our core retiree market, but also as a way of contributing real value to regions such as the Algarve during the quieter winter months. Despite understanding the long stay message and the flexibility that rentals provide, many clients purchase their dream home in the sun. With a pre-Brexit pound at historical highs above 1.40 and a rampant US dollar as strong as €1.05, the allure was undeniable.

However, things have changed. Just like that.

investment and retirement

With the only certainty, in an otherwise uncertain and volatile environment, being that taxes on real estate will continue to rise, it is our belief that all those seriously considering Portugal as an investment and retirement destination need to take some practical steps to limit their risk. These are some of the things that seem important to consider, in particular for those for whom a sudden change in cash flow might mean a significant risk, both in Portugal and the UK markets, in which significant change has occurred:

  • €500,000, in real estate terms, is a critical number. The new wealth tax will apply slightly above this, from €600,000 per taxpayer, but we are convinced that this level will drop in the future. Consider carefully any recourse to debt financing below €500,000, as the real cost of this debt, if it cannot be offset against the level of “wealth”, is much higher than you will see on your monthly mortgage statement. The extremely successful Golden Visa programme via the real estate investment route, has this level set as a minimum investment level. Our prediction is that over time the wealth tax limit will reduce to €500,000 or even lower for a hands-off investment and retirement (for those UK residents considering the Golden Visa as a way of protecting against Brexit and access to the EU, please read our related article entitled “GV as post-Brexit solution to retention of EU rights”
  • With the tendency being for government to arbitrarily “value-up” properties and every indication being that it wishes to bring official values in line with its “perceived” real market value, spurred on by comments of real estate agents and tourist operators, that business has not been as good in a decade or more, investors should allow some margin for manoeuvre. We recommend setting a setting a cap at €400,000 for individual property purchases. So our first suggestion: be cautious of the GV program and look for detached villas in prime areas (for example with sea or golf views) in the sub-€400K range. These should provide optimal triple protection: prime location and demand, ability to rent with the possibility of asking a premium if new taxes have to be passed onto the end consumer, and the likelihood that the value will remain below the wealth tax band for some time.
  • Do not purchase multiple properties with a total value above €500,000. One exception: redevelopment projects which can be bought and sold on after refurbishment as this can be built into the project’s P&L and projected returns;
  • Look for yields: If there is one thing which has happened in Portugal, it is that tourism has translated into greater demand. Try to find villas with 5% gross yield and apartments with achievable yields in the 5-8%. Greater yields demand one thing: lower prices. Stay clear of premium product unless it is clear that the revenue-generating option clearly covers cost and delivers a return. Focus on well-located apartments less than €200,000.
  • And if you are considering moving to the region, consider renting, long-term or even permanently as an option to buying. Anyone renting is protected from all the above taxes, and have the flexibility to act quickly if something does happen to affect their status as a tenant. In a volatile market, being liquid and flexible are among the best tools to allow for quick reactions.

Not many of our European clients consider the UK as an investment and retirement destination. After all they are looking for an improvement in lifestyle and it would generally be surprising if they were to take up the vacuum left by departing Brits. Nonetheless, UK buyers continue to hunger after the combination of Southern European lifestyle and a protection of their capital and possibly even life at home. The referendum of June 23rd has irrevocably changed the options available and some things are unlikely to revert to what they were, which means that we have seen an increase in requests from clients asking us for assistance in all of the aspects below:

  • At current exchange rates of around £1:€1.10 (a little higher after the US elections), Brits are sellers in Southern Europe. Even exceptional deals do not look as enticing as they were 6 months ago. UK buyers should consider holding off on buying and rent long term to achieve your lifestyle aims;
  • If you are a British homeowner, now is a great time to sell or to generate higher than normal rental returns. Consider placing your property with an experienced agent who has the ability to market it internationally or who is able to find rental clients beyond simply the peak summer season (or ideally do both);
  • Although there is some merit to the argument that the Pound may fall further, and so people may gain (in Euros), most buyers do not wish to become embroiled in a speculative currency market. Selling a property (in order to then earn more Pounds and make a profit) takes much longer than to buy one. Consider investing in fixed-return investments in high-growth sectors in the UK where your capital will grow regardless of what it is worth in a foreign market. Consider a strategy of some capital protection with some allocation of capital to lifestyle. With the pension reform in recent years, this is now perfectly possible given that everyone has the discretion to invest a significant portion of their pension pot, tax-free. Consider also the sale of a primary residence and the division of the proceeds into two markets, home and abroad. To some degree you will be mitigating against currency risk;
  • For those unwilling to put their retirement or move abroad on hold, think of a multi-currency strategy: downsize at home in your home country, buy a smaller property in the same currency and use the rest to rent or purchase your dream home abroad. You will be investing in your lifestyle but also mitigating currency risk.

The only sensible suggestion is to ensure that anyone who is considering a move, retirement or investment get in touch with someone who is up to speed with the changes occurring in the respective markets, and who has an overview of all key components required for a decision-making process: immigration; real estate; taxes; currency; accommodation rental versus real estate purchase…as a starting point.

In a volatile world, we think there is no greater value than reducing uncertainty, Portugal is a great place for investment and retirement.

us presidential election

US Presidential Election: Supercharged Brexit or a Rubicon of Difference?

US Presidential Election: Supercharged Brexit or a Rubicon of Difference?

Two days after the US presidential election, the world observed how America deals with democracy in a very different way to the British. A long and intense (and very expensive) presidential campaign was followed by dramatic decision. Universal and bipartisan commitment to the transition to a new order followed. Unlike America’s rust belt which one wonders will ever recover no matter how much stimulus is injected, all protagonists adjusted to new roles with the ease of a well-oiled machine. Fundamental to this apparent “settling in” regardless of some discontent in the streets, is the fact that the system has defined clearly the path to power in the case of a public vote.

Contrast the US presidential election to Brexit where the failure to clarify the scope, remit and due process of the referendum, and to clearly communicate this to all affected, has meant 5 months of continued debate, hesitation and uncertainty. The referendum of June 23rd continues to be scrutinised for legitimacy and intent. It is now clear that much is unclear! Clearly Brexit is not Brexit inasmuch as no one is able to define just exactly what detailed policies and approaches will be defined. Teresa May’s enthusiastic recounting of her conversation with president-elect Trump shows just how much the government was anxious for a chance to reiterate that the UK would be able to forge new trade agreements with its closest ally, with whom it has a “special relationship”.

us presidential election

Her comment might have carried more weight had not Boris Johnson, well known for his contradictory positions on a range of matters, immediately called on an end to “collective whinge-o-rama” (sp?), making it clear that the UK government senses an opportunity to deliver positive news amidst practical difficulties of trade negotiations yet to ensure.

Depending on their agenda, politicians will describe the two dramatically important events as exactly the same or completely different. Retirees and seniors in both markets, post these votes, will have surprisingly similar objectives, and the speed at which those elected are able to deliver on their promises, may encourage many to look at other options for a peaceful retirement…just in case:

  • Access to quality, affordable (public and private) health care (70-90% lower than in the US and comprehensive private insurance premiums for over-65s from around €40 per month)Stable and affordable cost of living (easily 40% cheaper than most US metropolitan areas, and still 15-20% cheaper than the UK, after the depreciation of the Pound);
  • Freedom to travel without being treated with suspicion (a weekend break in a different country, a drive over the border without being suspected of being a criminal)
    Tax-free or low-tax living for those who have save for retirement (up to 10 years tax-free for eligible new residents);
  • Peace of mind and living in a safe region with minimal political, racial or social unrest (where most foreign residents can afford to live at a comfortable level and have moved through choice)
    Quality rental accommodation (easily 50% cheaper, and in considerably better locations, than comparable accommodation in the US or UK);
  • Purchase a property where you are protected by law (knowing that fundamental ownership rights will be protected regardless of nationality or origin, and where direct heirs can inherit tax-free).

We don’t think that the Algarve will remain “Europe’s most famous secret” for long…

tax portugal

PORTUGAL: TAX HEAVEN TO TAX HELL?

PORTUGAL: TAX HEAVEN TO TAX HELL?

What a difference a week makes! A month, well that is life-changing. Three months, an eternity for tax.

As recently as six months ago, it was unquestionable that Portugal was among Europe’s best investment destinations. For seniors or retirees, it was the uncontested number 1: a growing economy; falling unemployment; a rapidly recovering real estate market; a real estate investment surge driven primarily by the very successful Golden Visa program; a wave of (mostly) wealthy foreign retiree immigration driven by the Non Habitual Resident program; and all this fuelled by 8 successive record-breaking years in the tourism industry.

However, since then, the government has insisted on a strategy of (not-so-gradual) assault on those perceived to be wealthy. And, unfortunately, as houses and apartments elicit a much more visceral response than pieces of paper known as shares or even a pile of intaglio paper known as money sitting in bank coffers, the government has set its sights firmly on ensuring that all those who own real estate pay for the right to bring investment into the country.

It started with what appeared to be a notion so ridiculous that it would be impossible to implement: taxing a “good” view. What was a good view? A sea view: definitely. A golf view: most probably. A country view: well, we know the countryside, under threat, may be considered a scarce resource. So that will probably come into play. Surely not a warehouse: well, under normal circumstances no one would think such an absurd thought. But these are not simply warehouses your house overlooks: they are refurbished historical buildings which are part of one of Europe’s most successful regeneration projects. So, yes, warehouses are probably in. In consulting it is called scope creep.

tax The Algarve’s golden-sand beaches are but a small part of the Golden Visa program’s attractions

Now, all owners of real estate in Portugal know they will be taxed more via their IMI (municipal tax) but they have no idea of who decides, as least subjectively as possible, how good their view is. Is it perhaps too much of a coincidence that this increase comes at a time when many owners requested the official revaluation of their properties (only possible every 5 years) after falling construction prices, which saw a sudden drop in municipal tax revenue?

That followed closely on ongoing chatter that inheritance tax would be implemented in the next budget. A strong call for wealth redistribution pervades the conversation and as the long-suffering Portuguese citizen is well aware, when a rumour hits the airwaves, it is certain that the details are already being ironed out.

Then came the wealth tax. Weeks in the publishing, but one suspects cooked to perfection over a long period of time. An absolute uproar that a far left party had made a “suggestion” about taxing property. But within days it was hailed as a constitutional breakthrough eschewing the principles of equality.

Surely, all wealth would be taxed in the same way? Wrong, only property.

But what about property that had debt on it and which was being repaid by the owner? The answer was swift: everyone knows that official property values are well below actual property values. It seems that the members of parliament have not yet had the chance to visit one of the many golf course developments scattered around the country where frequently the opposite occurs.

But what if my neighbour owns stocks, shares and stockpiles his cash? Clever neighbour indeed…

Who will it affect? The “wealthy” of course. Anyone with real estate worth more than €600,000 (double the exemption for married couples).

What about primary residences? First and second homes will be exempt, was the government’s first response. One week later, an announcement that a sliding scale mechanism would be implemented, with no first and second home exemptions.

Our prediction: the exemption limit will fall to €500,000 and the government will embark on an upward home revaluation program.

While investors and owners rushed to legalise or register their investment properties under the AL (local lodging) law, spurred on by a threat of prosecution and a legion of tax advisory and consulting firms eager to capitulate on a new revenue stream, the “dark” side of the law began to emerge:

  • the government can charge CGT on what is now considered a business, if you decided to cancel your AL license;
  • a continued prejudicial regime favouring short-term lettings over long-term lettings, the latter subject to an effective tax rate of around 7 times that of short-term letting (although recent changes now mean that this difference is only around 2.5 times);
  • a creeping up of IMI based on the notion of “lettable” properties (which conveniently were now easily identifiable by virtue of their registration under AL);
  • and the latest uncertainty which has assailed owners who are not, despite what the government may say, professional landlords: the apparent need to withhold government taxes, in addition to dealing with VAT, for values over €10,000 per annum, meaning complex accounting which is contrary to the “simplified” regime which was launched as a motif for the law.

Add to this the fact that the country will almost certainly implement a IHT or inheritance tax (and even those who have gifted assets in life are under threat of IHT being applied retrospectively), and in six months Portugal has seen uncertainty caused by a change of the real estate fiscal environment on parallel with Brexit in the UK.

With all this going on, it is no surprise that until some sense of stability or normality returns, clients looking to make the most of the positive personal taxation environment will continue to seek long-term rental solutions that currently do not have any of the disadvantages of a property purchase.

brexit vote

How the Brexit vote affect UK citizens

How the Brexit vote affect UK citizens

 

Anyone who is nearing or at retirement age wants to protect his or her hard-earned pension. Most want to do this in a safe country with a warm climate, friendly people, low cost of living and a great lifestyle.

A country with which the United Kingdom has long-standing historical, cultural and tourist ties has made it easy to do all the above. True to the unassuming nature of its people and the understated nature of its image, Portugal’s Non-Habitual Resident (NHR) law remains, much like the Algarve which was voted the “Best Place in the World to Retire”, Europe’s “most famous secret”.

The NHR law allows qualifying retirees with a private pension to receive this income tax-free for a period of ten (10) years. Occupational pensions, as long as deemed not to be sourced in Portugal, are exempt under the NHR law. The formal requirement for residency is 183 days, enough time to escape many of the grey days in the UK!

The NHR law also provides an excellent solution for liberal professionals such as consultants, company directors, doctors, dentists, architects and engineers, and anyone promoting active investment in the country.

The referendum on whether the UK will remain in the EU has an influence, not only on whether UK pensioners living abroad will see a change to their rights, but whether they will continue to have access to the benefits provided by virtue of being part of the single market.

The NHR regime, to date not well known and little-used by UK pensioners or their tax advisers, yet representing a potentially very efficient retirement planning option, may well be affected by a Brexit vote, albeit in our opinion only in the medium to long-term. The NHR legislation exists because Portugal and the United Kingdom have a long-standing double tax treaty which stipulates that taxation of pension income occurs in the country where the person is resident. This means that Portugal is able to approve advantageous legislation for new tax residents such as under the NHR legislation. If the UK were to exit the EU then it is reasonable to accept that some aspects of the double tax treaty would be subject to renegotiation between the countries, in particular if the UK were to take a harder line in terms of the entry of European (or in this case Portuguese) nationals. If this were the case, it could be expected that the NHR law may well be among those to which UK citizens and residents have to meet additional qualifying criteria.

The two most obvious requirements which could be implemented are:

  • a means-testing to ensure that pensioners are not a burden on the country or its health and social system and;
  • a visa requirement for residence.

There has been much discussion in the media about the migrant and immigrant drain on the UK’s NHS. Without (at least in this article) being drawn into the debate about whether this use outweighs the benefits of the lower-cost employment of foreign-qualified medical professionals, many trained in the EU at a significant cost to the country which trained them (and many of whom have completely free tertiary education systems) – and thus representing a significant saving to the UK – or whether the NHS should in fact adopt some form of reasonable co-payment such as is already the case in the dispensing of prescription medicines, it should be considered whether the cost to the UK of having to support its more than 400,000 senior citizens in the EU will be significantly higher than the risks posed by implementing reforms in the way in which the NHS charges for its services.

The fact that there is currently a net outflow of capital to the EU as payment for the healthcare of its citizens abroad, does not mean that this cost will be eliminated. It simply means that these payments would now be made to local NHS services all of which funded by the taxpayer. The net outcome, some have argued, is the same, or worse, if it is assumed that returning pensioners will swap foreign private insurance (due to cost) for the NHS.

It must also be remembered that, while we all have a soft spot for the NHS as an institution and laud its universal franchise, many of the countries to which UK citizens choose to retire (France, Spain and Portugal are examples) have national (public) health systems all ranked above the UK in world ranking terms, and with similar approaches to public service delivery. Therefore (and this without taking into account the health benefit of living in warmer climates), many seniors moving abroad are in fact receiving better medical care at similar or often reduced rates, and where they seek complementary private insurance, this is at a fraction of the cost which can be found in the UK. For the reasons of freedom of movement, the quest for a healthy lifestyle and access to cost-effective healthcare, Brexit vote represents a potentially significant impact on the senior population of the UK with an ambition to seek a healthier, less costly retirement.

There is also the issue of the many UK citizens who live abroad (effectively spending a significant part of their year in another EU country) while remaining officially resident in the UK. By not having been tax resident in the countries in which they “reside” many of these individuals cannot assume that they rights will be protected, unless they subject themselves to some scrutiny as to any potential past tax liabilities associated with residence.

From a procedural point of view, a Brexit vote may place the UK in the same category as those applying to reside in Portugal, whose origin is outside the EU. Such applicants need a visa to enter the country and to remain as residents. However, Portugal has a visa category for new pensioners and as long as UK nationals meet the criteria, we do not expect access to that status to be more difficult for UK nationals than it is for any other non-EU nationals.

From an entry and immigration perspective, the UK is and will remain (regardless of the outcome of the referendum) outside the Schengen area and therefore border controls (both outbound and inbound) will continue to exist. With a Brexit vote additional border control documentation such as a physical visa form or “visa waiver programme” such as that implemented in the US, may come into effect. But other than more time and paperwork which has unfortunately been the trademark of international travel in recent years, no fundamental procedural change seems likely. After all, the UK and Europe will still wish to encourage cross-border tourism.

brexit vote

Notwithstanding the above, the hard reality is that many people who move abroad, do so not only for lifestyle reasons, but because they need to manage a pension pot which is under increasing pressure on different fronts. Taxes, increased cost of living, cost of healthcare (especially medicines and care at home or in specialised accommodation) and exchange rates (which affect imported goods and services). For this reason, and while a Brexit vote may have limited impact on the take-up of the NHR status by applications from the UK, our belief is that Brexit vote will have a significant effect on the number of UK citizens who will be able to afford to live abroad, with a potentially significant short-term impact as the Pound is expected to devalue.

Under these circumstances, one can foresee a scenario where, with lower buying power (due to pensions fixed in Pounds and spending in a post-Brexit stronger Euro), UK retirees will be forced to return to the UK. This will create two immediate challenges:

  • These individuals will have greater and more costly health requirements. Whereas many of these would have been handled via cost-effective private insurance in a foreign country (a net saving to the UK), most of these individuals will return and utilise the NHS. A significant part of the increased “immigration” pressure on the NHS will thus be from UK seniors who will use up more NHS resources per capita than the average of the UK population;
  • With the UK’s love of real estate, most UK citizens living abroad have bought properties. A depressed Pound will see an increase in the value of foreign properties (in Pound terms) held by UK owners and a tendency to “sell up” to repatriate proceeds. Although selling real estate in Southern Europe is much more difficult than buying, the fact that UK sellers will have the exchange rate in their favour means that they will be more prepared to be flexible as regards their selling price in Euro, They will thus probably sell quicker than a Euro-based seller. This reinforces the prediction of an increase in the number of pensioners returning to the UK.As each UK citizen with the right to a vote analyses their options, we argue that efficient retirement planning should be done, regardless. The possibility of a tax-free pension, the current absence of inheritance tax, no wealth taxes (other than annual taxes on real estate), access to the state health system for residents, a lower cost of living than most of the EU-18, and the availability of quality and cost-effective private health, have earned Portugal the accolade of the “Best Place in the World to Retire” from the 2014 Overseas Retirement Index.

Voted the world’s best golfing destination and Europe’s best beach destination by the World Travel Awards, and with a range of rental-based solutions now available to allow people to test their potential retirement abroad before taking the plunge, the NHR status is something which every pensioner in the UK at or nearing retirement should be considering as part of their retirement planning.

* From 2015 there is a planned progressive reduction in the 3.5% surcharge imposed on all personal income tax in Portugal, linked to the end of Portugal’s bail-out from the EU/ECB/IMF

brexit

Brexit Impact on Tax-Free Retirement in Europe

BREXIT and Impact on TAX-free Retirement in Europe

 

Brexit will almost certainly have some effect on UK pensioners living abroad but whether they will continue to have access to the same benefits provided by virtue of being part of the single market, remains to be seen.

Anyone who is nearing or at retirement age wants to protect his or her hard-earned pension. Most want to do this in a safe country with a warm climate, friendly people, low cost of living and a great lifestyle.

A country with which the United Kingdom has long-standing historical, cultural and tourist ties has made it easy to do all the above. True to the unassuming nature of its people and the understated nature of its image, Portugal’s Non-Habitual Resident (NHR) law remains, much like the Algarve which was voted the “Best Place in the World to Retire”, Europe’s “most famous secret”.

The NHR law allows qualifying retirees with a private pension to receive this income tax-free for a period of ten (10) years. Occupational pensions, as long as deemed not to be sourced in Portugal, are exempt under the NHR law. The formal requirement for residency is 183 days, enough time to escape many of the grey days in the UK!

The NHR regime, to date not well known and little-used by UK pensioners or their tax advisers, yet representing a potentially very efficient retirement planning option, should be on every UK pensioner’s list of options, if they are considering spending time abroad during their retirement. Currently UK citizens have the automatic right to live in the EU, Portugal included. Until negotiations on Brexit are concluded, British pensioners should seriously consider Portuguese tax-residency under the NHR regime, prior to the possibility of having to meet additional post-Brexit qualifying criteria such as:

  • a visa requirement for residence, and
  • a means-testing to ensure that pensioners are not a burden on the country or its health and social system

The possibility of a tax-free pension, the current absence of inheritance tax, no wealth taxes (other than annual taxes on real estate), access to the state health system for residents, a lower cost of living than most of the EU-18, and the availability of quality and cost-effective private health, have earned Portugal the accolade of the “Best Place in the World to Retire” from the 2014 Overseas Retirement Index.

Voted the world’s best golfing destination and Europe’s best beach destination by the World Travel Awards, and with a range of rental-based solutions now available to allow people to test their potential retirement abroad before taking the plunge, the NHR status is something which every pensioner in the UK at or nearing retirement should be considering as part of their retirement planning.

* From 2015 there is a planned progressive reduction in the 3.5% surcharge imposed on all personal income tax in Portugal, linked to the end of Portugal’s bail-out from the EU/ECB/IMF

lisbon to algarve

The Tortoise and the Hare – From Lisbon to Algarve

The Tortoise and the Hare:

Rambling or racing from Lisbon to Algarve

Portugal has just been voted the winner in the best European destination for American tourists, as voted by readers of 10Best Readers’ Choice and USA Today: www.10best.com/awards/travel/best-european-country. As the country’s capital, many intercontinental flights stop over in the Portuguese capital. While this may be an inconvenience for some, it presents a wonderful opportunity to experience the city (one of Europe’s most popular weekend getaways) and also to choose the way in which to connect to the visitor paradise of Portugal, the Algarve, located at the southernmost tip of the country, so here we let you know the top priorities from Lisbon to Algarve.

Portugal is one of the world’s 20 most visited countries, with over 13 million people visiting the country every year. After a long-haul or transatlantic flight, a few days in Lisbon are an opportunity to overcome jet lag and to adjust to the different weather and gastronomy, in the city voted by Food and Wine magazine as one of the world’s most romantic.

tourism pace setter portugal lisbon to algarve

Being based in Lisbon is convenient in that most tours start in the capital. When on a short stay, highly recommended is a visit to Cascais with its beautiful cobbled streets and the amazing sweeping views over the bay and the Tagus estuary, and a wander through the medieval city of Sintra. The city’s Pena Palace was voted the continent’s most attractive castle by European Best Destinations, beating Neuschwanstein and Segovia’s Alcazar to the post. Only 30 kilometres (less than 20 miles) west of Lisbon, venture out by catching the train at the Cais do Sodré station near the Tagus River, which passes underneath the impressive 25th April bridge linking the popular Docas area to the Christ the Redeemer statue on the southern banks of the river. You will also pass the Torre de Belém and the Monument to the Discoveries, testament to the golden years of Portuguese maritime exploration. In the same vicinity, the Jerónimos monastery is a wonderful example of Manueline architecture (named after the King who ordered it built). Further along, pass Estoril, in the earlier part of the 20th century the place where the European wealthy congregated. The imposing casino, the country’s largest, is easily spotted from the train. Then hop on a bus or do a tour of Sintra, and make sure to try some of the sumptuous pastry!

Back in Lisbon, the options are almost endless. Stroll down Rua Augusta which Condé Nast Traveler has voted the street one would most wish to visit before dying! Climb up to St. George’s Castle and gaze out over Lisbon’s seven hills. Explore the Chiado with its fado singers and traditional dishes. Visit the modern redevelopment of the Expo area, with its modern architecture, cable car ride, scenic tower, views over the Vasco da Gama Bridge and Europe’s largest aquarium.

tourism pace setter portugal lisbon to algarve

Ucityguides has ranked Portugal the 6th most beautiful country in the world, in a list topped by Italy, Spain and France, and which includes perennial favourites Brazil, South Africa and the USA. From Lisbon to Algarve, your final destination, beckoning, will you now be anxious to race to the California of Europe or tease your senses by meandering slowly through the Alentejo province?

If you choose the former, there is no better way to experience Portugal’s world-class infrastructure than to cross the Vasco da Gama Bridge and head straight down the A2 highway for an approximately two-and-a-half hour journey to the Algarve. Once there, the A22 highway will take you east to Vilamoura, Faro, Tavira and Spain and west to Lagoa/Carvoeiro, Portimão, Lagos and Sagres, including crossing the fabulous bridge over the Arade River.

If your choice is to take your time down to your final destination, then cross the 25 de Abril bridge, pass Christ the Redeemer and continue south on the A2 until the exit at Alcácer do Sal. Take the national road which gives you a bird’s eye-view of the Sado River and one of the largest rice plantations in the country. Make the most to stop off for a bite to eat at one of the simple road-side restaurants serving typical Alentejo dishes.

lisbon to algarve

After probably having overindulged on generous portions, make your way to the coastal road and be prepared to spend a few hours on a meandering road, but well worth the effort to turn off to visit Porto Covo, Vila Nova de Milfontes, Zambujeira do Mar and Aljezur. Before heading down towards Lagos and the western Algarve, make one more stop – take the circular route via the beaches at Bordeira and Carrapateira.

tourism pace setter portugal lisbon to algarve

Nothing drives home the reason why the World Travel Awards have anointed the Algarve as Europe’s leading beach destination than looking out at miles of pristine beach, sand dunes and river, knowing that some miles further south, lies the first of the 40 golf courses which contributed to the World Golf awards voting Portugal as the World and Europe’s leading Golf Destination for 2014. Just a small part of the reason why the Algarve is the Best Place in the World to Retire.

non habitual resident law NHR

The Non Habitual Resident law: a Case Study

The Non Habitual Resident law: a Case Study

 

I thought that Börje Forsberg looked tanned and relaxed. Although we had never met before, I assumed that this was because he was now retired to the Algarve. He was quick to confirm my first impressions. By his own admission, he now has a very different lifestyle to the one before his retirement four years ago, all due to the Non Habitual Resident law (NHR law).

We had organised to meet so that Mr. Forsberg, an experienced company director and still active non-executive director, could tell me a little about why he had become a resident of the Algarve, specifically the town of Lagos. In a very personal and genuine way, he was spontaneous in admitting that the death of a close friend to cancer four years ago had made him rethink his life and decide to bring forward plans to seek a change of lifestyle and reduce his “double shift of 30 years” which had taken him to hundreds of international working destinations.

That change included a renewed focus on friends, family, his grandchildren, new challenges and (surprisingly) travelling (but not work-related).

In a structured process often associated with Scandinavian thinking, his research process had included an analysis of Spain, Malta, and France, until settling on Portugal, which he had only visited twice before. After an initial visit to Cascais and the greater Lisbon area, it was Lagos, a city he describes as “genuine” and “not destroyed by tourists”, that he decided to settle, spending on average nine months of every year. Originally from Stockholm, he found that in the area, expatriates mingle easily with locals, and a sense of a normalcy prevails throughout the year (even in the heady summer season).

I assumed that his decision to adopt Lagos and the Algarve as his home involved more than the sea and pool views from his apartment, or the peaceful, balmy afternoons reading a book in the shade of the overhang of the balcony above him. He quickly expanded on the reasons for his choice: “the culture, good food, good wine” (said, it must be added, with just a hint of a smile), all added up to the “perfect” location for him. With a population of just 20,000, even the swollen summer that brought with it probably another 100,000 did not create any significant traffic jams. Perhaps it is time that they “rebuild the old bridge”, he adds as a critical afterthought, referring to the city’s once-popular crossing between the city’s promenade and Meia Praia and which due to structural instability and a lack of funds had ceded its position to a new crossing further upstream.

And, of course, the tax situation. Mr. Forsberg found out about Portugal’s Non Habitual Resident law, which allows new eligible retirees to receive their pensions tax-free in the country. Even though it was not his main motivation, the 57% tax saving was the icing on the cake. Mr. Forsberg is quick to add, though: “don’t move if saving tax is your only reason”, implying of course that his was a weighted decision involving a number of variables. But there is no doubt that for Swedes, “Portugal is the number 1 option” from a tax perspective, better than even Malta which has traditionally been the destination of choice.

True to his promise to himself “to live a completely different life”, he now runs (or jogs) five times a week, plays some tennis, reads and finds time to deal with his approximately 20 daily e-mails (which made me admiring and insanely jealous at the same time, when thinking of my own inbox).

With views over the ocean and of the communal pool in his apartment complex, there could be worse places to retire, I thought. And a 50% tax saving as an added prize…no wonder Mr. Forsberg has already convinced ten of his Swedish friends to join him.