Non-Habitual Residence (NHR) status allows those in receipt of foreign-sourced dividends to receive them free of tax. This has proven to be a great opportunity for UK business owners who can enjoy the luxury of running their businesses at arm’s length.
But most owners do not want to run their businesses forever, and what many may not have realised is that selling their business whilst Portuguese tax resident could be highly tax efficient and, in some cases, provide a better result than the UK.
We recently worked with a business owner who had agreed to sell their UK-based business, but the sale would take some time to complete.
They knew what their tax liability on the sale would be in the UK but were keen to move to Portugal quickly, rather than wait for the sale to complete whilst they were resident in the UK. They were understandably disappointed to learn that the potential tax liability in Portugal would be markedly higher, at 28%.
However, on reviewing the structure of the business and how the sale was arranged, we were able to advise on a position where the couple could move to Portugal immediately with a resulting zero tax liability. Additionally, working with a local accountant, it was possible to create an accounting loss for them to use against future gains in Portugal.
In addition, we presented a highly diversified and managed risk solution to preserve and grow their wealth, whilst also future-proofing them for the end of their NHR status and a possible return to the UK.
The position turned out to be better for them selling as Portuguese tax residents, rather than UK tax residents, and they got to get on with their new life in the sun sooner than originally planned.
Replacing business income
The most important step following a sale or after drawing large dividends is finding an appropriate new home for the cash - you do not want it sitting in the bank being eroded by inflation, invested in inappropriate structures, or held tax-inefficiently going forward.
Whether you want to replace the income you once enjoyed, or preserve wealth for future generations, the key is structuring correctly for your goals. This must take into account several factors, such as where you and your ultimate beneficiaries are resident and the associated tax implications, flexibility in access and appropriate investment strategies, to name just a few.
Explore your options
We regularly work with business owners’ UK accountants, tax advisers and other trusted parties to explore restructuring and selling options. We are also on hand for clients to ensure that the advice is coherent, viable and implemented correctly from a cross-border perspective.
We also work with clients to put longer-term plans in place to ensure ongoing tax efficiency, compliance, and wealth preservation here in Portugal. If you would like to explore your options, please contact us for an initial discussion.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6 CII) and Tax Advisers (ATT) with nearly 20 years of combined experience advising expatriates in Portugal on cross-border tax and financial issues. For a complimentary initial chat contact us at: +351 289 355 316 or firstname.lastname@example.org. Find out more at www.spectrum-ifa.com