The future of UK expats in the European Union, post-Brexit, is no clearer despite the clock ticking ominously closer to the 29 March. Hot spots such as France, Spain and the Netherlands have featured heavily in discussions, but the roughly 49,000 Brits living in Portugal seem to have escaped much notice.
Warm weather, golf courses and low costs of living have long attracted sun-worshipping expats to Portugal, especially the Algarve.
They, along with every other Brit scattered across the EU, will have to consider what any and all potential Brexit scenarios may mean for legal residency rights, health cover and any entitle or increase in the UK state pension.
But many in Portugal seem to be taking it all in their stride – well, the wealthier ones, at least.
Antonio Rosa, joint country manager of Portugal at Blacktower Financial Management, told International Adviser that high net worth (HNW) expats are not really feeling financial strain.
“In the last couple of years, I have had only three clients in the Lisbon area from the UK who were high net worth individuals,” said Rosa. “Their concern really wasn’t Brexit because of the level of income they had.”
He said the Brexit “really didn’t feature in their thought process” and they were not too worried about the impact of a drop in the value of the pound. “But, naturally, it matters more to those on a low income.”
Rosa did admit that healthcare would be an issue for expats, expects that HNWs will be fine as they usually have private care.
Fleeing to the sun
The impact of Brexit is currently unknown, but expats are already fleeing the UK and moving to Portugal, Andy Oliver, senior area manager at DeVere Group, told IA.
He said that people were accelerating their plans and that some were moving two or three years ahead of schedule “just in case Brexit gets in the way”.
Oliver expects it to become “more difficult” to move to places like Portugal due to costs; but said that nations like Portugal, Spain and Greece will want to keep investment coming into the country.
An influx in wealthy people was also predicted by the Knight Frank 2018 Wealth Report, which said the number individuals in Portugal with $5m (£3.87m, €4.4m) or more is expected to rise by 24% to 5,650 by 2022.
Future proofing
Jason Porter, business development director at Blevins Franks, sees the worst-case scenario for expats in Portugal as “mirroring the rules for Canadian and South African nationals”.
This would mean them going through a very similar process as they do currently, but “where the minimum income requirement is higher, so you are not a burden on the Portuguese welfare state”.
Porter also expects the numbers of sun-seeking retirees to continue to rise. “The position for UK nationals moving to Portugal to live in retirement, who are not working, is relatively straightforward – as long as your income and/or capital is sufficient.”
Non-habitual regime
The Portuguese tax authorities have tried to persuade expats, through incentives, that Portugal is the destination for them.
The non-habitual residence (NHR) tax rule, introduced in 2009, allows for a flat 20% personal income tax rate for any earnings in Portugal; plus, a tax exemption on all foreign income, including pensions, for 10 years.
Rosa said: “The NHR scheme has actually helped a great deal. It is key and over the last two years it has taken hold for not just Brits but all expats. The Nordic countries are trying to put a block on it – the UK have not.
“NHR helps a great deal with higher levels of income, eg private income from pensions. If you have a high net worth individual with a reasonable private pension, they won’t pay tax for 10 years. That’s a remarkable improvement compared with if they were to stay in the UK.”
And while the NHR has been a success, there are some prerequisites.
“They have to, within the preceding five years, not have worked in Portugal, and the other one is that it is only advantageous if you receive a private and not state pension, and it is based on income not capitalisation,” said Rosa.
This resonated with Porter, who admitted “retirees are particularly advantaged” by living “very tax efficiently” in Portugal.
But Portugal is not the only country incentivise pensioner immigration. From 1 January 2019, any retired immigrants who are not resident in Italy and are in receipt of a pension could be eligible for a 7% flat-rate tax on all their foreign income.
Housing hit
But property could prove a stumbling block, warned DeVere’s Oliver, as prices are on the rise.
Luxury homes in the Algarve increased 6.5% in price during 2017, year-on-year, while mainstream prices in Lisbon stand 24% above their 2012 low, according to Knight Frank.
Oliver said: “Portugal got badly affected by the financial crash of 2008. And it is probably one of the last countries to emerge from the austerity era with a lack of infrastructure investment.”
The NHR is one tool that Portugal is deploying to help its recovery.
“A lot of people, not just Brits, are coming across for the NHR and golden visa scheme. One of the requirements for non-EU investors gaining residency is a minimum property investment of €500,000,” Oliver said. “People are, therefore, buying property and it is a very healthy market.
“Property prices are visibility going up by high single digits or low double digits every year. If that goes on for the next few years, you have got interest rates low, banks looking to lend, you have got properties being built, repossessed properties being redeveloped, it means prices will go up. No matter who they are, the property price will eat into people’s budgets in the next few years.”
