Move to Gibraltar/Portugal and UK tax

Question:

My wife and I retired in August 2007 when we sold our business and have since settled the considerable CGT

We have recently been advised to consider moving abroad as we have high investment income and as from April the higher rate of tax is 50%

We live in the UK owning an apartment however we also own an apartment in Portugal since 2003 where we spend on average 16 to 19 weeks per annum and an apartment in Ireland since 2001 which we visit once or twice a year to spend about two weeks in total.

We are considering Portuguese residency where I understand pensions are treated very favourably viz a viz the UK. Is this true?

I have your Tax Haven book edition 2006/07 and have read up on Gibraltar. There is now a HNWI status for which my wife and I would qualify

We are also considering buying an apartment in Gibraltar to gain Gibraltar residency. I note from your book we only have to reside there for 30 days per annum and the apartment has to be available for 7 months. Is this still the situation. If bought we would have no intention of letting this apartment out and the same for those in Portugal and Ireland

Does it therefore make sense to consider buying an apartment in Gibraltar? It appears HNWI has a limit on tax to be paid? Please clarify?

Regarding our apartment in the UK is it possible not to sell or rent this out and and just to use it as our UK base for visits? I realise the 90 days rule needs to be adhered to and have read it is best to stay out of the UK for one year after date of departure, which would be no hardship.

We also own BTL apartments in the UK which for the tax year ended April 2009 produced joint rental income for my wife and I of some £48K per annum. Does it make sense to transfer these into a trading nominee company be it based in Gibraltar or depending on our residency Portugal?

We have no mortgages on any of the above properties

Many thanks, in advance, for your answers.

Answer:

We are considering Portuguese residency where I understand pensions are treated very favourably viz a viz the UK. Is this true?

In terms of the UK position, you'd initially be subject to UK basic rate tax at source on the pension. You'd then need to look at the UK-Portugal double tax treaty to assess whether this provides for specific taxing rights. It states:

'...(1) Any pensions and other similar remuneration (other than pensions or remuneration to which Article 18 applies) paid in consideration of past employment to a resident of a Contracting State and any annuity paid to such a resident shall be taxable only in that State.

(a) Subject to the provisions of sub-paragraph (b) of this paragraph, remuneration or pensions paid out of public funds of the United Kingdom or Northern Ireland or of the funds of any local authority in the United Kingdom to any individual in respect of services rendered to the Government of the United Kingdom or Northern Ireland or a local authority in the United Kingdom in the discharge of functions of a governmental nature, shall be taxable only in the United Kingdom...'

Therefore providing the pension is not a governmental/public pension it would be taxed solely in Portugal. As such you could apply to have the pension paid gross (without UK tax) and account for tax in Portugal. The UK state pension would also be taxed solely in Portugal

In terms of the Portuguese tax position you would need to take local advice on this. However I understand there are special provisions in terms of annuities whereby only 15% of the receipt is taxable.

I have your Tax Haven book edition 2006/07 and have read up on Gibraltar. There is now a HNWI status for which my wife and I would qualify

We are also considering buying an apartment in Gibraltar to gain Gibraltar residency. I note from your book we only have to reside there for 30 days per annum and the apartment has to be available for 7 months. Is this still the situation. If bought we would have no intention of letting this apartment out and the same for those in Portugal and Ireland.

Does it therefore make sense to consider buying an apartment in Gibraltar? It appears HNWI has a limit on tax to be paid? Please clarify?

No, there is now no minimum stay. Yes, there is a limit on the tax to be paid.

As I understand it if you qualify for HMWI status your income tax is capped at around £26K (ie this is maximum income tax charge). If you've no Gibraltar source income you would pay the minimum £20,000.

Regarding our apartment in the UK is it possible not to sell or rent this out and and just to use it as our UK base for visits? I realise the 90 days rule needs to be adhered to and have read it is best to stay out of the UK for one year after date of departure, which would be no hardship.

We also own BTL apartments in the UK which for the tax year ended April 2009 produced joint rental income for my wife and I of some £48K per annum. Does it make sense to transfer these into a trading nominee company be it based in Gibraltar or depending on our residency Portugal?

In terms of the BTL's whether they're held by you personally or an offshore company UK basic rate tax would be due under the non resident landlord scheme.

You/the company could elect to receive gross but would then need to account for tax annually under a self assessment return. Simply having UK BTL's owned personally should not impact on your residence status. You could potentially look to form of financial restructuring to reduce the UK taxable profits.

You could retain your apartment, however if it's available for your use, particularly if combined with frequent visits to the UK, this would be a strong indicator of UK residence.

If you did want to do this you should ensure that you clearly move your primary home overseas, limit the number of visits to the UK, allow other people to use the apartment (eg family etc) and show a definite break in your UK residence and move permanently overseas.

About the Author

He worked in Ernst & Youngs Entrepreneurial Services department for a number of years before setting up his own tax planning practice. He is now a full time tax author.

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