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What price sunshine and the IRS
What price sunshine and the IRS
A retired friend IN THE UK who has owned a property in the Algarve for many years and has used it regularly without counting the days felt it was time to regularise his situation by becoming formally resident here and making returns to the IRS . A simulation of the tax he was paying in UK against what would arise in Portugal for 2012 showed that he would have to pay in Portugal far more than twice his UK tax bill. In addition a 10% recovery on medical costs as against free costs in UK extends the gap even further. Portugal have hit pensioners very hard and with the pension allowance being lowered and further reduced by pensions exceeding the minimum statutory wage on even a fairly small pension there is no relief.
In UK maximum personal allowance, for persons over 75, of £10,660 does not get reduced below £8,105 and with separate taxation these allowances can be doubled for a couple.
With taxation rates in Portugal rising even further in 2013 he decided that the move could not be justified and that he would count his days and remain below the 183 day limit.
However he was faced with a further problem in that he had been letting his property in Portugal to UK holiday makers and not making the required tax declaration in Portugal. He ascertained he could be faced with 5year fines for failing to make a return plus back tax and interest. Whether he actually declared in UK as many say they do I do not know.
However if proper declarations of letting income are made in Portugal then one is less likely to get caught under the requirement for a TAX declaration by someone who does live here more than 183 days a year or
“Has property at their own disposal on 31 December of that year a dwelling place in such condition that it may be inferred that there is the intention to keep and occupy it as an habitual abode;”
My friend understands that the IRS having taken hairdressers, restaurants and mechanics to task for tax evasion are now looking closely at property income and residential requirements for tax returns.
To illustrate how the tax burden here has risen under the austerity measures with much the same income as 2011 I am looking at a 70% increase in tax for 2012.(about 3% arises from a change in the exchange rate compared to last year)
How does all this equate with the multi-millionaires coming to Portugal with tax free pensions?
The reality is ordinary people faced with doubled income tax bills will not retire to Portugal and many who are here and who do pay their proper share of taxes will decide to go back home as the increased demands are simply too great.
What price properties then!
In UK maximum personal allowance, for persons over 75, of £10,660 does not get reduced below £8,105 and with separate taxation these allowances can be doubled for a couple.
With taxation rates in Portugal rising even further in 2013 he decided that the move could not be justified and that he would count his days and remain below the 183 day limit.
However he was faced with a further problem in that he had been letting his property in Portugal to UK holiday makers and not making the required tax declaration in Portugal. He ascertained he could be faced with 5year fines for failing to make a return plus back tax and interest. Whether he actually declared in UK as many say they do I do not know.
However if proper declarations of letting income are made in Portugal then one is less likely to get caught under the requirement for a TAX declaration by someone who does live here more than 183 days a year or
“Has property at their own disposal on 31 December of that year a dwelling place in such condition that it may be inferred that there is the intention to keep and occupy it as an habitual abode;”
My friend understands that the IRS having taken hairdressers, restaurants and mechanics to task for tax evasion are now looking closely at property income and residential requirements for tax returns.
To illustrate how the tax burden here has risen under the austerity measures with much the same income as 2011 I am looking at a 70% increase in tax for 2012.(about 3% arises from a change in the exchange rate compared to last year)
How does all this equate with the multi-millionaires coming to Portugal with tax free pensions?
The reality is ordinary people faced with doubled income tax bills will not retire to Portugal and many who are here and who do pay their proper share of taxes will decide to go back home as the increased demands are simply too great.
What price properties then!
Last edited by Geriatric on Sun Mar 31, 2013 9:50 pm, edited 1 time in total.
Re: What price sunshine and the IRS
The new " beneficial rules " for retirees do Not apply for existing RESIDENTS which of course does not help ypur friend.
I suggest that he contacts accountants used to such cases, local accountact hve little knowledge or experience of double taxation etc.
We recently had contact with one who did n know the difference between non residents with a fiscal card and those who have taken up Residencia. This is a case for the professionals .
I suggest that he contacts accountants used to such cases, local accountact hve little knowledge or experience of double taxation etc.
We recently had contact with one who did n know the difference between non residents with a fiscal card and those who have taken up Residencia. This is a case for the professionals .
Re: What price sunshine and the IRS
i have been re reading your post and your friend may qualify for the NEW Retiree regulations if he has not already applied for residence.
In theory State Pensions are tax free and tax on income is limited to 20% for a certain period.
As already posted contact a qualified professional. Soveriegn is a good place to start as they have given me good advice.
In theory State Pensions are tax free and tax on income is limited to 20% for a certain period.
As already posted contact a qualified professional. Soveriegn is a good place to start as they have given me good advice.
Re: What price sunshine and the IRS
found this, assume this is what EMM is referring to. see also it has to be an occupational pension, so if your friend has a company pension no problem, if he/she is receipt of a state pension then maybe that portion would be taxable, (or maybe just have it paid to a Uk bank account). What if you friend didn't do anything and just kept the status quo, who counts the days anyway? on our last trip in December immigration scanned by wifes passport but just waved me through. on other occasions when departing Faro immigration have looked at my passport but not scanned. Next to near impossible to prove number of days residency.
apologies didn't post the link earlier.
http://www.expatmoneychannel.com/conten ... tax-relief
apologies didn't post the link earlier.
http://www.expatmoneychannel.com/conten ... tax-relief
Re: What price sunshine and the IRS
This has been the topic of another recent thread & the problem is widespread. There seems to be a general apathy among British owners to either comply with the licensing regulations or declare rental income for tax purposes. Aided & abetted by property management companies operating in the Algarve, who profit from their "competitive advantage",it's difficult to be sympathetic when they get caught and fined. The front page of The Resident newspaper this week announced a government clampdown - not before time.However he was faced with a further problem in that he had been letting his property in Portugal to UK holiday makers and not making the required tax declaration in Portugal. He ascertained he could be faced with 5year fines for failing to make a return plus back tax and interest. Whether he actually declared in UK as many say they do I do not know.
Re: What price sunshine and the IRS
Sovereign's View seems to be
"The Portuguese tax department has closed what now appears to have been an “imaginary” loophole in the tax law concerning pension income.
It had been thought that foreign pensions would not be taxable in Portugal if paid to residents who had taken tax residency under the Portuguese 2009 non habitual resident’s regime.
This “loophole” was being exploited in Sweden and some other territories where it is possible to be exempt from pension income paid from those countries if one emigrates under certain conditions.
However it has now been clarified by the Portuguese department that foreign pension income received in Portugal will always be taxed in Portugal regardless of the tax regime of the foreign territory and in accordance with the double tax treaty signed with that territory."
So much for all the rubbish reporting in the press.
joeysoap's link to the expat forum is 2011 and hardly current relative to the latest developments.
Who counts the number of days? The onus is on the individual to comply with the legislation and failure to do so would be considered to be "Evasion" and as one of the regular finacial adviser's states. The main difference between EVASION AND AVOIDANCE is THE THICKNESS OF A PRISON WALL.
As long as you do not use cash machines or debit or credit cards and do not fly you might not leave a trail but is it all worth the risk. The answer is clear conduct your affairs according to the regulation's of the Country or face the consequences.
"The Portuguese tax department has closed what now appears to have been an “imaginary” loophole in the tax law concerning pension income.
It had been thought that foreign pensions would not be taxable in Portugal if paid to residents who had taken tax residency under the Portuguese 2009 non habitual resident’s regime.
This “loophole” was being exploited in Sweden and some other territories where it is possible to be exempt from pension income paid from those countries if one emigrates under certain conditions.
However it has now been clarified by the Portuguese department that foreign pension income received in Portugal will always be taxed in Portugal regardless of the tax regime of the foreign territory and in accordance with the double tax treaty signed with that territory."
So much for all the rubbish reporting in the press.
joeysoap's link to the expat forum is 2011 and hardly current relative to the latest developments.
Who counts the number of days? The onus is on the individual to comply with the legislation and failure to do so would be considered to be "Evasion" and as one of the regular finacial adviser's states. The main difference between EVASION AND AVOIDANCE is THE THICKNESS OF A PRISON WALL.
As long as you do not use cash machines or debit or credit cards and do not fly you might not leave a trail but is it all worth the risk. The answer is clear conduct your affairs according to the regulation's of the Country or face the consequences.
Re: What price sunshine and the IRS
If as you repoet the tax free loophole may have been closed is the beneficil rate of 20% still applicable.
As the rate in other countries like Sweden can be as high as 60% this is still advantageous.
As the rate in other countries like Sweden can be as high as 60% this is still advantageous.