BUYER BEWARE! THE GOLDEN VISA BEING SOLD AS A SURE-FIRE SOLUTION to EU RIGHTS POST BREXIT
It is perhaps fitting that I found myself writing this article in the air between the UK and the EU. I sit, poised, mid-air, trying to weigh up whether recent changes in the UK or those announced by Portugal will have most impact on our business, our clients and our investments – The Golden Visa Program.
From the frying pan into the fire, ring the bells in my head. Ding-dong. Or should that be ping-pong. I settle down, once more, as a business owner, to replan because no government seems to be able to maintain any sort of stable business framework within which to operate and invest.
I am also reflecting on a recent option which has been floated by, among others, some large law firms, as a solution to quickly finding a solution to European residence (and eventually EU member nationality) post-Brexit.
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.
Portugal, a country with which the United Kingdom has long-standing historical, cultural and tourist ties made it easy to do all the above a few years ago. 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”, among 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 vote to leave the EU is likely to have an influence on the right of new UK nationals seeking residence in Portugal, in particular after the formal date of departure of the UK from the EU.
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, 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 most obvious requirements which could be implemented are:
- Means-testing or minimum level of income, to ensure that pensioners are not a burden on the country or its health and social system;
- Visa requirement for entry and permanence in the EU;
- Need to document and prove actual days spent in the country.
From a procedural point of view, a Brexit 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 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.
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. A combination of the above factors may drive UK nationals to seek alternative residence options in Europe.
Recently, we have seen a surge in recommendations from law firms and advisors recommending the use of Portugal’s very popular investment program called the Golden Visa which entitles someone who invests at least €500,000 in Portuguese real estate (other routes are available but have been little used), to benefit from permanent residence with the need for minimal presence in the country. While this in theory resolves the problem of residence, few of these advisors have mentioned or indeed taken into account recent changes in legislation which have made it more expensive to own real estate in Portugal.
In particular, a few keys aspects should be taken into account when seriously considering this route:
- The Golden Visa-style properties have typically been located in Lisbon, a market which has seen huge price increases as a result of a flood of (among other) Chinese, Brazilian, Angolan and Russian money. As a result, many properties are overpriced. Avoid Lisbon’s most popular areas unless you definitely wish to live there;
- Council or municipal tax (known as IMI) has increased as a number of new, subjective factors, have been incorporated into the calculation. Anything perceived as being “luxury” real estate, which includes a vast majority of the real estate prepared for the GV market, will see higher levels of IMI, running into the thousands of Euros per year;
- Portugal has approved a new “wealth” tax on real estate assets cumulatively valued above €600,000. New build and revalued properties have higher official valuations, meaning that the probability of incurring a tax on these properties is much greater. It is our opinion that this threshold is likely to fall in the future, that the tax percentage will increase and that pure investment properties attracting benefits under other programs such as the Golden Visa, will be excluded at some point from this exemption. Staying away from real estate priced in the €400-600,000 bracket seems to be a sensible strategy at the moment;
- Yields on expensive properties in locations such as Lisbon are disproportionately low when compared to elsewhere. If you are seeking to then rent out a property, considering multiple smaller properties adding up to €500,000 is a more sensible option.
Portugal and specifically the Algarve has been voted the “Best Place in the World to Retire” on several occasions. 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 the Golden Visa programs, but also understands the underlying real estate market which is a fundamental component of either program. These two programs can form, if properly structured, an effective part of one’s retirement planning. If considered in isolation, they can neutralise exactly the benefit they are trying to achieve.
