IRS making progress on tax collections

[Geriatric]

Interesting tax difference between UK and Portugal.
I have two very old friends who decided to return to UK to be nearer family. They have sold their property in the Algarve and have just received their last assessment from the IRS. It is for €15,000 as against a simulated UK tax charge equivalent of €7,500.
The IRS does include the 3.5%surcharge of €1,500 but it is not difficult to understand why people are relocating to UK.
They went to the Finaças at Lagoa to tie up any loose ends and were seen by a young graduate who is part of the team dealing with, amongst other things , tax evasion on property rentals. He was happy to talk about his work. He said that in many cases they just had to search the name of the property in Google and they could ascertain it was being advertised for let. Visits were being made to properties and large sums of tax , fines and interest were being collected.
He knew about the large disparity between UK and Portuguese tax but they were monitoring people who had left for UK tax purpose yet still retained a property in Portugal. If that property was available for their use at the end of the year then a tax return was required and this would be followed up.
An other avoidance scheme was where company pensions were only being declared as if they were annuities and this was being also followed up. I do not know the details of what is being done but it is clear the IRS are actively pursuing all forms of tax evasion.
In order to sleep easy at night it would seem careful attention to Portuguese tax matters should be followed.

[steve]

Are you saying that on their annual income unrelated to anything arising from the sale of their house they paid €15000 but that had they been paying tax in the UK on this income they would have only paid in GBP the equivalent of €7500? That is a big difference even allowing for the “one off” 3.5% surcharge here and people who pay their taxes and face increasing burdens are becoming justifiably angered at those who evade tax.

Hopefully the net is closing on people who let out villas and apartments here but don’t account for tax here on the income. Tax evaders increase the tax bills of people who abide by the law. The IRS should be able to tackle this easily by responding to adverts for holiday rentals to identify properties being rented out. Many properties use false names but this could be overcome by follow up enquiries to establish the identity of the property. Villa managers are another source of information. Requests to the tax authorities of other EU countries for details of people who are declaring income from properties in Portugal would elicit information to compare to the record of tax declarations here to identify people who pay tax but not in Portugal. This is not rocket science and a small dedicated team in the IRS could generate a lot of additional tax revenue.

The following extract from the Algarve Daily News newsletter explains how irregularities are also coming to light from an unusual source :-
"The law of unintended consequences may come into play for the owners of those Algarve rental properties recently targeted by scammers.
Disappointed holidaymakers found the accommodation for which they already had paid a deposit was either non-existent, or already was occupied.
Those who made written complaints down at the police station will have registered the rental property location which, if it exists and does not have an Alojamento Local licence, will be of interest to the council and the taxman, both keen to stamp out illegal lettings and fine those evading tax ...
http://www.algarvedailynews.com/news/30 ... s-stranded"

The pensions arrangement you refer to has long puzzled me since it is clearly limited to annuity based pensions but has been used for occupational pensions which don’t qualify. One person I knew was advised to do this by one of the well known accounting firms in the Algarve and he had to pay a percentage of the saving to the firm to finance a fighting fund in case of an IRS challenge. In the event he decided that that arrangement was too risky to continue and he backed out but I am aware that the scheme still continues.

[jeny670]

Thanks for this informative posting. My partner and I were planning to retire to the Algarve but the disparity between UK and Portuguese tax, that you have highlighted, is far too great to contemplate a move at the the present time.I n addition I was reading that over 500,000 young Portuguese left the country in last ten years and this is going to leave a large hole in future tax revenues. This money is needed to provide for an increasingly aged population.The current government are trying to fill the gap by raising taxes and cutting pensions. Increased taxes only encourage avoidance but from this posting it would seem that the IRS are taking strong measures to tax those who deliberately ignore the Portuguese tax system. Back taxes, penalties and interest can turn a modest tax due into a very large amount. I do not fully understand the ramification of declaring company pensions as annuities but it would make sense to ensure that who ever is submitting on your behalf will pick up the bill should their advice be proved to be incorrect.
Jeny

[biffa]

Jeny670

A retiree can come here as a Non Habitual Resident and get tax free pension income for 10 years. That must be better than the UK as in addition - the sun shines quite a bit!

[Bruce Wallis]

The trouble is that NHR may look good from Portugals point of view, but the British authorities wont buy into it.
NHR says you must spend at least 180 days in Portugal to qualify.
Great that is doable!!
No it isnt, because the UK govt will only allow you to spend 90 days in the UK if you are taxed in Portugal, and not the other 180 odd days.
I thought that the tax people talked to each other these days!!!

Is there an answer to that one Biffa????

[jeny670]

The Non habitual system seems to be a minefield and professional charges for completing the various forms are very high. As I understand it, for company pensions, the exemption applies only if they are taxed in the country of origin. This would avoid the very high Portuguese tax rates.
However the UK revenue have issued a consultation document which proposes to withdraw non-residents’ entitlement to the UK personal tax exempt allowance of £10,000 .
This could affect those with UK pensions (particularly government service pensions as under the UK/Portugal double tax treaty they are only taxable in the UK..
No wonder there are so many people who ignore the rules and simply evade the system!
With penalties and back interest it is not worth it and I prefer to sleep at night.

[shanagarry]

I've been watching this topic since it first appeared - it's not a new one but I am wondering how the 'updated' practices are impacting the investment community?

It's not that long ago that property bought as an investment did not attract the attention of the many agencies now determined to part well meaning people from their cash - it either did not exist or they just couldn't be bothered. The introduction of the licensing law for holiday properties bought to be let to help repay the mortgage or supplement income was the opening shot and there doesn't appear to be a month go by now when some other piece of invasive legislation is introduced. I read on another blog that property sales are improving and wondered are these being sacrificed at the altar of a sensible ROI? The post from Geriatric regarding his friends €15,000 'hit' is something of an eye-opener and one that will make some purchasers rethink their strategy - especially the older generation who could be long standing owners and have probably not been as attentive to the changing financial landscape as they should have been - assuming they could understand it.

Taking a point from Jeny's mail (evasion) - I wondered how those who bought in the 'good old days' are coping with the swingeing tax impositions that hitherto were non-existent and are they living in the hope 'it can't happen to them' and dreading every knock on the door? If so, that's doesn't bode well for a comfortable existence - regardless of the climate. If the Financas people have the time and resources to trawl the internet or check records - it's only a matter of time before that door knock or letter alters somebody's life.

There won't be any sympathy from those who comply and maybe that's right but in this new and regulated world is there a sensible margin/return to be made in a 'buy-to-let' situation and is the amount of hassle and compliance related worry a good return on your investment