If you want to bring a little sunshine into your life while stretching the pound in your pocket a little farther, then Portugal is one retirement destination you really should consider. Portugal is an expat destination with a difference. Few expats move to Portugal for work. Most move to retire, enjoy the climate and to spend time on the golf course. But getting the best financial advice is a must to maximise your financial health as an expat in Portugal.

British expats make up the sixth largest expat community in Portugal, numbering more than 22,000, who mainly live in The Algarve – a beautiful region on the south coast of the country with isolated sun-kissed beaches and fantastic rock and cliff formations.

Moving to retire means most of the expat population are older and think less about life protection and saving, but more about buying a home, pensions and investments, estate planning and health care.

Portugal Expat Financial Advice

Regardless of your age or working status, you need to take good financial advice to make the most of your money.

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An independent financial adviser can show you options you may have missed and point out the tax and investment pitfalls that might cost you dearly.

Here, you can find out about some of the financial facts you should know when living as an expat in Portugal. Some are general tips for expats living anywhere and some are specific to Portugal.

Don’t forget that expat finances are more than finding out how to pay less tax.

Your finances cover many other aspects of life for you, your family and loved ones and often, tax is a small part of a much bigger picture.

How Financial Firms Are Regulated in Portugal

One of your first steps after moving to Portugal is to find a professional and qualified IFA.

Some shifty characters lurk in the dark corners of bars and other expat hang-outs hoping to give unregulated – which means illegal – financial advice to anyone they can hook.

These crooks will charge a fee or pass your details on to another adviser who pays them for the lead.

Avoid them – no reputable adviser or financial firm will deal with them and their too-good-to-be-true advice is likely to cost you money you can ill-afford.

You must identify the adviser who can offer the advice you want.

The Portuguese Insurance and Pension Funds Supervisory Authority is responsible for licensing financial advisers.

The authority is part of a tripartite financial regulatory system. The Bank of Portugal monitors banks, credit card companies and other finance houses, while the Portuguese Securities Markets Commission deals with companies and funds accessing stock markets.

Besides checking if advisers are licensed and authorised with the Portuguese Insurance and Pension Funds Supervisory Authority, ensure they have the necessary qualifications to give the guidance you are seeking.

You will find financial advice in Portugal is offered on a different basis than in the UK.

Instead of fee-based advice, most firms offer financial products free at the point-of-sale with built-in commission packages for advisers.

Trust and your financial adviser

Working with a financial adviser is a long-term relationship, almost like a marriage.

Your adviser will know your most intimate financial secrets, so you need to trust their discretion and advice.

No matter how good the deal offered by some advisers, the relationship will crash and burn sooner or later if you do not get along with each other.

Why expats in Portugal need a financial plan

Every expat needs a financial plan that makes the most of their money, however they decide to save or spend.

We all have different financial resources and ideas about spending them.

A financial plan is about what we want to do with the money we have now and in the future.

Working with a financial adviser is like having a GPS device to guide you.

Your adviser should chime in at important points in the journey to reassure you that you are turning in the right direction and warning of problems ahead so you can take the appropriate action.

You can choose to do what the adviser says, opt to deviate from the recommended route or make stops along the way.

As an expat making a home in a new country, you are not expected to know the intricacies of the tax system or if you should keep you money on or off shore.

That’s the job of your financial adviser.

What financial planning means

You are not always in control of your money, even if you have a carefully thought out financial plan.

Stock markets and interest rates may rise or fall, governments can topple or unforeseen taxes can quickly make profits disappear.

Financial planning takes care of this with ‘what if’ scenarios played out by a computer that try to account for how events outside your control will impact your savings and investments.

The best financial plans will scrutinise your spending to free up money that’s going out on unnecessary fripperies to divert them to  savings and investments.

Financial planning’s not just for the wealthy

Contrary to popular opinion, everyone can benefit from financial planning, whatever their financial standing. It’s a myth that financial planning is just for the wealthy because they can afford to pay for advice.

How you spend your money influences much of your life, where you live, the car you drive and the things you do. A good financial adviser should save you more than your advice costs, whatever your income.

What will financial planning help you with?

Managing your money takes a little effort. It’s surprising how few people track their spending, check their bank balances and try to spend within their means.

Most people manage to amass their savings because they watch their outgoings and spend less than they earn. It’s as simple as that, but this discipline is even more important if you are retired and living on limited means.

The cost of living is a lot cheaper in Portugal than in the UK or even across the border in Spain, but you still need to monitor spending and put some cash aside for those unforeseen expenses, like a new car.

Hard to answer financial questions

A financial adviser can sit down and give you the answers you need about all aspects of your finances, including:

  • What’s the best way to save – with a bank or a savings plan?
  • How much should you take from your pension and how should you invest the money?
  • Is an annuity worth the bother?
  • How much can you afford to spend on buying a home and what are the ongoing taxes and costs?
  • How do cross-border taxes affect expats, especially Portugal’s Non-Habitual Residence tax breaks?
  • Should you save and invest offshore?
  • Do you need to put aside money to help pay to school your grandchildren?
  • Do you need to pay for private medical care?
  • Who gets your money when you die?

Many of these questions are easy to answer for financial advisers, but tougher for expats with a limited knowledge of how the financial system works in Portugal.

Your adviser should have back-office help from lawyers and tax experts who can devise a custom strategy to deal with tax and estate planning for you.

The question is not can you afford to take financial advice as an expat, but can you afford not to?

What does a financial adviser do?

A financial adviser navigates you through your different life stages by devising and recommending strategies to make the most of your money.

We all experience financial ups and downs at different times.

These events can include getting married or divorced, having children, changing jobs, accidents or illness. As we age, these issues expand to cover grandchildren and even great grandchildren.

Financial challenges present themselves as life unfolds. Your adviser stands by your side to cast an unemotional eye over what’s happened and to suggest how to move on financially.

A good adviser points out your options, discusses the good and bad points of each alternative, but leaves you to make the final financial decisions.

Financial adviser qualifications to look for

Besides authorisation to give advice in Portugal, your financial adviser must have the relevant qualification to talk about mortgages, pensions and investments.

The qualifications should be awarded by a recognised independent organisation. The main bodies recognised in Portugal and the UK are:

  • Chartered Insurance Institute
  • Personal Finance Society
  • London Institute of Banking and Finance
  • Chartered Institute of Bankers in Scotland
  • CFA Society of the UK
  • Chartered Institute for Securities & Investment
  • Institute of Financial Planning
  • Pensions Management Institute
  • Scottish Qualification Authority

For offshore pensions, such as QROPS (Qualifying Recognised Overseas Pension Schemes)or QNUPS (Qualifying Non-UK Pension Scheme), and estate planning, the adviser should have more advanced qualifications.

Estate planners may belong to an organisation like STEP – The Society of Trust and Estate Practitioners or SOLLA – Society of Later Life Advisers.

Only deal with a professional

Only consult advisers who belong to a professional body – and don’t just take their word about their qualifications because some advisers may not be who they say they are.

Many expats have handed over a fee to a scammer posing as a qualified professional who has done a runner.

Advisers belonging to a professional body are likely to have indemnity insurance that could pay compensation if you lose your money due to poor advice.

The body will also have an independent adjudicator for dealing with complaints who can award compensation if a case is found in your favour.

Check if they belong to a professional body by searching either the regulator or body granting the qualification online – but don’t take the adviser’s word at face value however genuine they may seem.

You will need the adviser’s trading name and business address to carry out the check. These should be on a business card or letterhead.

This issue is more of a problem with solo advisers or small companies.

Larger, well-known financial firms that have an international presence are unlikely to work with unqualified advisers.

Running the same check on the regulator’s web site will confirm the level of advice the firm is allowed to give.

What sort of advice are you getting?

Financial advisers will give you different products and services to chose from that depend on the type of advice they can offer.

Advice comes as independent, multi-tied or tied.

Confusingly, an independent adviser can be multi-tied, so finding out the quality of the advice you are receiving is important.

Independent financial advisers – commonly called IFAs or international IFAs –offer whole-of-the-market advice because they are not restricted to discuss the products of a specific provider.

In theory, they can choose the product that suits your needs the best from the thousands on the market.

IFAs should tailor a financial strategy based on a fact find, which is a detailed questionnaire about your current and future financial goals. The fact find should also address your attitude to risk so the IFA can determine the most appropriate savings and investment plans for you.

The fact find benchmarks your current financial status and gives the information the adviser needs to recommend products and services that should deliver your goals.

Independent v tied financial advice

Some IFAs work for networks, which provide the sales and marketing structure of their business.

A network is an umbrella organisation that gives administrative support and sometimes access to a narrow range of products rather than the broader whole-of-the-market approach of a true independent.

These advisers are generally called ‘multi-tied’.

The third type of adviser is ‘tied’.

Tied advisers only recommend products provided by their employers and are not allowed to discuss or refer you elsewhere. The typical tied adviser works for a bank or as an agent for an insurance company.

The risk with multi-tied and tied advisers is that you could miss out on better deals offered by other providers, which could cost you a great deal of money over time.

This is an important point to bear in mind in Portugal, as advisers there often don’t have the same level of qualification as those in the UK.

How much does financial advice cost?

That depends on you and the advice you want.

Of course, good advice comes with a price tag. In some cases, advisers charge a fee, while most will bundle commission with the products and services they recommend, which often means you never know how much you are paying for advice.

In Portugal, most financial advice is commission-driven and often what you pay is rarely disclosed.

Commission is not all bad, though. As an expat, you would not work for free and you should not expect your financial adviser to do so either.

Don’t be fooled into thinking you are not paying for advice.

To try and keep the price down, talk to your adviser about paying a fixed fee for specific work. Don’t agree a time-based fee, as this can stretch to far more than you would otherwise pay.

Also, if you do pay a fee, don’t pay twice for the same advice.

Either pay a fee with the commission waived or disclosed, or accept you pay commission as part of the price of any recommended products or services and keep your wallet in your pocket.

Questions to ask your financial adviser

Ask your financial adviser about their qualifications and experience with other expats in a similar financial position to you.

You should find out if they have other customers like you and how you can continue your business relationship if you or they move to another city or even to another country.

Hopefully, you know someone who has used the adviser and can give a recommendation. Don’t rely on testimonials provided by the adviser as they are hardly likely to offer customers who bad mouth them.

Search online for reviews, but take comments with a pinch of salt.

Few of us bother to post online reviews unless we are very upset with the way we have been treated. Also check the dates of comments. The opinion of a happy or unhappy client from five years ago is not too relevant today.

It pays to carry out your own due diligence, which should cover their:

  • Checking the adviser’s qualifications and experience working with expats in Portugal
  • Confirming independent or tied status for recommending products and services
  • Researching their status with the Portuguese financial regulators
  • Working out fee and commission structures
  • Looking at arrangements for continuing advice should you or the adviser move town or leave Portugal
  • Find out if the adviser can help with tax and estate planning between the UK and Portugal
  • Note how quickly an adviser responds to your calls or email. If they can’t offer good customer service to new clients, they are unlikely to improve when you become a client

How to find the right financial adviser for you

Word-of-mouth is a good place to start if you have expat friends in Portugal who already work with an adviser.

Looking up advisers on the internet or in trade directories or the local press are other options.

Some large expat financial advice companies have a global office network and can look after all your financial needs, regardless of where you live or work.

Treat picking  a professional who you can trust with your pension, family finances and savings  like recruiting a specialist to fill a financial role in a business.

Hiring a workplace professional involves a reading through applications, interviews and checking references before reaching a final decision.

But few expats apply the same rigorous checks to the person they trust with their money.

Don’t rush into recruiting the person who will play this important role in your life.

Advice with benefits

We’re not talking about state benefits, but some added financial extras that come from advisers with firms offering exclusive deals.

Many larger financial firms in Portugal have links with banks, money transfer specialists and providers offering expats preferential rates for services normally beyond what you would expect from an advice-only firm.

Putting all your money management under one roof can save time and money, as you benefit from economies of scale you could not hope to achieve as an individual.

What New Expats Should Do About Tax

Confirming your tax residence as soon as you can is vital.

Where you pay tax and the rate you pay is determined by rules in the country where you are tax resident – and this might not be the place you think.

Tax residence is not a decision you can make for yourself. Where you pay tax rests with a set of rules applied by each country. Generally, they revolve around where you make your main home and how many days a year you spend there.

Many expats find although they may have lived away from their home country for many years, circumstances determine they are still unexpectedly tax resident in the country that they thought they had left.

Are you really an expat?

You can call yourself an expat if you have a main home in Britain and spend several months a year at a second home in The Algarve, but that does not make you tax resident in Portugal.

The bad news is if circumstances dictate you are still tax resident in the UK, you will pay tax on your income to HM Revenue & Customs.

Expats should not forget that some countries, like the USA and South Africa from 2020, expect expats to pay tax on their worldwide income regardless of where they live.

Failing to understand expat tax is costly for anyone moving to Portugal who ignores how their personal circumstances affect their finances.

Don’t forget that expats need to sort out their financial affairs in the country that they are leaving as well as in their new home.

HMRC expects anyone departing the UK to live overseas to file a form confirming the details– plus a self-assessment tax return finalising their UK tax position.

Six tax tips for expats

Expats should take personal financial advice from professionals in Portugal and the UK, but some general rules of thumb apply:

  • Don’t wait for the tax authorities to catch up with you – expats should start tax planning at home and in Portugal months before the departure date
  • Tax follows residence, so confirm where you are likely to be tax resident and follow the correct rules
  • Don’t try to navigate complicated tax rules on your own, but seek professional advice
  • Expats like to move their money freely, but some countries impose rules and exit taxes about when taking local currency beyond the borders
  • A lower cost of living may make moving to Portugal attractive, but many expat destinations will want to see expats have money in the bank and expensive private healthcare on arrival so they are not a drain on social service budgets
  • Avoid any income shocks by working out your tax before you leave the UK. Tax equalisation deals through double taxation agreements should mean expats should pay no more tax overseas than they would at home.

Have a contingency in place for returning home sooner than you expect. Many expats cut short their moves because of family issues (54%), poor health (42%) or culture shock (28%), according to data from the Legatum Institute Foundation.

Returning home can shatter the best tax and financial plans, so expats should make sure they know how returning home early will impact their living standards.

The importance of tax residence

Establishing the correct tax residence is vital, because your financial advice and investment recommendations are based on where you live and how much tax you pay.

If you get tax residence wrong, your finances can quickly unravel as you could face unexpected tax bills that will devastate your savings and investments.

Non-Habitual Residence tax breaks

The Non-Habitual Tax Resident scheme (NHR) in Portugal lets expats who want to move to the country benefit from tax breaks – subject to some conditions.

Not every expat will gain from NHR, especially if they are high-earners.

The scheme allows expats to bring money earned abroad into Portugal tax-free.

The tax-exempt income sources are:

  • Interest, dividends, some royalties, other income from capital, capital gains and income from immovable property, such as rents
  • Pension income
  • Salaries and other employment income
  • Money derived from independent personal services

But expats need to bear in mind that this income may be taxed in the UK.

For instance, HMRC will tax rents from buy to let properties under the Non-Resident Landlord Scheme and expect capital gains tax on the disposal of investment property.

Some forms of income are not tax-free, but qualify for a 20% tax rate – the jobs that qualify are:

  • Architects, engineers and related professions
  • Visual artists, actors and musicians
  • Auditors
  • Doctors and dentists
  • Teachers
  • Psychologists
  • Expats offering professional services
  • Investors, administrators and managers

FATCA and CRS

Expats should not count on banks keeping their offshore financial affairs secret any longer.

The tax authorities in Portugal are linked to more than 100 other governments for swapping data about foreign nationals who are tax resident elsewhere who control money or investments in Portugal.

Similarly, the countries in the Common Reporting Standard (CRS) send Portugal’s tax authority data about tax residents with offshore accounts and investments.

Portugal belongs to  CRS and US-centric version, the Foreign Account Tax Compliance Act (FATCA).

Managing Your Money

The adage of looking after your pennies means the pounds will look after themselves still holds true, even in Portugal’s cents and euros.

Watching what you spend pays off because you can spot wasted money and make savings quickly.

Some expats budget with a smartphone app, cash books or a spread sheet.

Sensible expats live within their financial means and divert more to savings and investments.

The first step in effective money management is setting up a budget to track spending.

To find out more about setting up your own budget, check out the free planneroffered by the UK government’s Money Advice Service

Balancing Risk And Opportunity

Risk and opportunity are two of the key words bandied around by financial advisers.

Your financial future is depends on the risks you are ready to take with your cash and opportunities to make more money that arise from time to time.

  • Risk is anything that happens that can cost you money – this can range from tax changes, to natural disasters or personal issues, such as divorce.
  • Opportunities are a chance to make you money – from the cryptocurrency bubble to staking cash against stocks and shares, currencies or commodities.

Many investors make money by playing the margins in volatile markets, like the ever-changing price of cryptocurrency Bitcoin.

Counting your profits and losses

How much profit or loss you make from investments depends on  your attitude to risk when an opportunity arises.

Those ready to take the most risks make the biggest gains, but often they stack up the largest losses as well.

Your financial adviser should balance these extremes by discussing how much risk you are ready to bear – and how much money you can afford to lose if everything goes wrong.

Risk also affects other areas of your finances besides investment.

Take banking. A bank in a politically unstable country may pay a higher rate of savings interest, but the risk is the economy is more volatile and the government might freeze your cash. You must balance the opportunity of earning more with the risk of losing some or all your money as well.

Expats often follow the ABC rule – if you come from A, live in B, then bank and invest in C to level out risk.

Savings and investments

Savings are easily accessible money set aside for the short if you need an urgent cash boost.

There’s no magic savings figure, but most financial advisers would suggest you should have enough cash to cover bills for three months.

Investments are longer-term savings that earn better rates because they are locked away for longer, mainly in bonds or pensions or directly into stocks and shares.

Expat pensions

If you are tax resident in Portugal but a British expat or someone with savings in a UK pension, an IFA can help you with the Qualifying Recognised Overseas Pension Scheme (QROPS).

These are special offshore pensions designed for expats supervised by HM Revenue & Customs in the UK.

QROPS are tax-effective pensions for expats that can offer larger tax-free lump sum payments than the 25% of fund value available in the UK.

QROPS are also a useful tool for expat estate planning.

For expats still UK tax resident, a self-invested personal pension (SIPP) is also worth considering.

The UK state pension, public sector and civil service pensions cannot be transferred to a QROPS.

Planning for the worst

The sad truth is time and deteriorating health catch up with us all, and the best hope we have is for a long and peaceful life before passing on.

Planning what happens to unspent savings and investments when you die falls into the general category of estate planning.

The basics of estate planning start with making a will in each country where you have assets – such as property or cash.

For British expats, that means the UK and Portugal.

Some wealthier expats with extensive property or investment portfolios may need extra advice about setting up a trust.

Benchmarking your current finances

Benchmarking is putting a marker down that allows you to see the state of your finances today.

Your financial adviser will establish this with a fact find.

The fact find analyses your financial status by going through your income, spending, savings and investments step-by-step.

Your fact find will also include other factors, such as private health insurance and life cover.

This procedure identifies if your finances fall short in any area, how improvements might be made and to deliver a net worth statement.

The statement is a balance sheet showing the value of what you own less what you owe, such as a mortgage or loans.

The bottom line is your net worth.

Net worth and your investments

Net worth  can flag the products and services your financial adviser can recommend.

Expats with an income of more than £100,000 a year are considered high net worth individuals (HNWI) by financial providers.

Financial advisers will have a special range of products for these sophisticated investors, who are treated as if they have more financial expertise than lower earners.

The more disposable cash an expat has, the higher up the wealth scale they rise – to the peak as an Ultra-High Net Worth Individual (UHNWI), who has £23 million  of liquid financial assets.

Expats Really Do Need A Financial Plan

To sum up, if you are an expat in Portugal, you should have money to spare if you are sensible about how you spend your income.

But it’s no good having cash to save or invest if you don’t have an idea of what you want to do with your wealth.

That’s where a professional, reputable financial adviser helps.

Follow our guidance for financial advice for expats in Portugal and hopefully you will take the first steps on the road to a comfortable retirement.

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