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Tax: I live in Portugal… Can I pay my taxes in the UK?

Blevins Franks – June 2006

There’s no argument - if you live in Portugal for more than 183 days (i.e. six months) during the Portuguese tax year (the calendar year) you are resident for Portuguese tax purposes and liable to pay taxes on your worldwide income and gains (and to succession tax on your Portuguese assets) to the “Finanças”, the Portuguese Tax Authority. You cannot choose to be taxed in the UK instead.

It doesn’t matter that you came and went, or that the 183 days were not consecutive. This is a cumulative rule. If you conform to the 183 day rule, you are treated as tax resident from 1st January to 31st December, although if you come from a country with a Double Taxation Treaty, like the UK, you may be regarded as being resident for only part of the year.

If you have a permanent home in Portugal available as at 31st December in any given year, you may be deemed to be a resident of Portugal for tax purposes if it appears that you intend to keep and occupy it as your permanent home.

Portuguese tax is levied according to “de facto” residence. This has nothing to do with citizenship, nationality or whether you have a permanent residence or work permit.

A number of individuals have not declared themselves as Portuguese tax residents even though they live in Portugal for more than 183 days in a calendar year. Of those who have declared themselves, many have shown a very low income inconsistent with their lifestyle. The Portuguese tax authorities are tightening up in these areas, and much more care will be required in the future. There is a power available to the Portuguese tax authorities to tax individuals on their ‘visible wealth’ if it is felt that those individuals are under-declaring income etc.

There is a presumption of residence for dependant relatives of anyone deemed resident in Portugal. If claiming that you are not liable to tax, the burden of proof will be shifted to you, rather than the tax authorities.

If you are a tax resident in Portugal and claiming Treaty protection on UK-source income, then you are likely to be asked by HM Revenue and Customs to prove that you have registered as a tax resident in Portugal.

In broad terms, under the UK/Portugal Double Tax Treaty:

  • Pensions (other than government pensions) will be taxable in the country in which you are resident.

  • Capital gains tax from the disposal of movable property are generally taxable only in the country of residence, whilst gains arising on disposal of real estate may be taxed in both the country where the property is situated AND in the country of residence (although long-tem non-residents of the UK are not generally taxable on UK gains).

  • Where income is taxed by both countries, double tax relief will be granted in the country of residence.

    You are UK resident if you spend more than 183 days in the UK per UK tax year (6th April to 5th April following), or your visits to the UK average 91 days or more per UK tax year calculated over a period of up to four UK tax years. Generally, under the 91-day rule, exceptional circumstances such as remaining in the UK because you or a relative have fallen ill are ignored, although it is dangerous to rely on this if there is a large amount of tax at stake. It is safer not to spend more than, say, 30-45 days each tax year in the UK.

    Maintaining a property in the UK may suggest that you have not properly ‘left’ the UK and that the overseas property is more of a holiday home than a permanent home base. HMRC needs to be convinced that you have left the UK for a ‘settled purpose’. Keeping a property, perhaps with your spouse returning frequently and staying in the same family home, may not convince them otherwise.

    So, you might be deemed to be tax resident in the UK under the UK rules and in Portugal under the Portuguese rules in each country’s tax year, but you cannot actually be tax resident in both the UK and Portugal at the same time. The UK/Portugal Double Tax Treaty has a tie-breaker clause which further determines in which country you should pay the taxman. It works like this:

  • If you are resident in both countries according to each country’s domestic rules, you are deemed to be resident in the country in which you have a permanent home available to you.

  • Where you have permanent homes available in both countries, you are deemed to be resident in the country that is your centre of vital interests, i.e. the country with which your personal and economic relations are the closest.

  • If this test is indeterminate, you are deemed to be resident in the country in which you have an habitual abode, but if you have one in both countries, you are deemed to be resident in the country of which you are a national. At this point UK nationals will be regarded as UK residents.

    Instructing an experienced tax adviser or accountant to deal with your Portuguese tax residency and returns would probably be time and money well spent, and there is no substitute for good advice.

    © Blevins Franks 2006

    This article is reproduced with the kind permission of Blevins Franks.

    For information and advice on tax issues, contact the Blevins Franks Tax Advisory Service on +44 (0) 207 015 2126 www.blevinsfranks.com


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