Capital gains tax on investment income - Portugal vs Costa Rica

lukeh New member

Member since 07 June 2020

lukehNew member07 June 2020 14:25:08

I have a relatively substantial ISA, a form of investment account that is tax exempt in the UK. I'm not required to pay CGT when I buy & sell investments within the account, and do not pay income tax when I withdraw funds.

I am considering relocating overseas, possibly to Portugal or Costa Rica. I will take-up specialist tax advice at the point when plans mature, but currently am just at the stage of early research, so wonder if members of this community might be able to provide some advice on the tax treatment of my investment account in each of the countries under consideration, if I were to become tax resident there.

From the somewhat limited information I'm able to find online:

Portugal - I would be required to pay CGT on profits from sale of stock within the account, and the Non-Habitual Resident scheme would not provide any relief for this type of investment income.

Costa Rica - I would only be liable for income or capital gains within the country, so my UK account would remain entirely tax free.

Have I understood this correctly in each case? In Portugal, are there any authorised mechanisms for preserving the tax efficiency I'm currently benefiting from by remaining a UK resident?

If this is not possible in either of my preferred locations, are there any other countries that might treat the investment account more favourably?

Many thanks in advance for any insight or suggestions.

Luke

diverdi Member

Member since 22 November 2012

diverdiMember12 June 2020 11:46:00

Hi Luke.
I am not an expert, but I'm in the same boat and I've discussed it with various parties.

As you have established, PT does not allow the same favourable treatment of share investments as you are currently experiencing. Any gain from sales (short or long term) is counted as capital gains and you are taxed. As far as I have established, at best, you can be taxed at lower brackets (I think 14.5 is the lowest) depending on the amounts involved; at worst, you pay 28% under NHR (first 10 years). I had some advisors suggest I move the portfolio to a kind of wrapper - however there were considerable are cost implications to this and it seemed to allow far less discretion on what was held in the portfolio, so I didn't pursue it.
Another option is to live off dividends - these are more favourably treated by NHR as I recall.

Costa Rica does appear more favourable in respect of taxation, BUT it is "the other side of the world" - I'm not sure how much proximity to the UK/Europe you may want.

If you are looking that side of the world, there's also Panama which has vary favourable tax regimes.

I hope this helps.. I am still looking for my answers but in the meantime I also converted a fair chunk of my portfolio to cash.

lukeh New member

Member since 07 June 2020

lukehNew member12 June 2020 11:58:25

Many thanks for the response.

Ultimately I think I'll have to let matters other than money dictate where we move to, and just try to find the best way to organise my finances with a local professional once the decision is taken.

It's not out of the question that we return to the UK one day in the future, so perhaps the best approach for me is to retain the current status of investments, and to simply incur a Portugese tax bill for any sales made in years when I'm a resident.

If there was a very significant transaction anticipated, I suppose that might cause me to find an excuse for returning to the UK or perhaps HK for six months, to secure a temporary overseas tax residency to make the required sales.

Do you happen to know whether NHR makes any difference to capital gains, or is this really more of an income tax allowance?

diverdi Member

Member since 22 November 2012

diverdiMember12 June 2020 12:18:39

I agree that in the end, it is what you want from life that has to dictate where you live.

Bear in mind that if you live in PT for less than 6 months a year then you generally don't have to pay tax there (unless they've decided it is your primary residence).

Sorry, I don't fully understand your last question ... as I mentioned, any gains from your shares (trading or long term) are considered CG. If you are earning small amounts (ie only selling small amounts to pay your way) then it may be more advantageous to be taxed according to normal tax tables, rather than being taxed at the 28% capital gains rate (as applies under the NHR scheme).

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TonyJ1 Contributor

Member since 25 March 2014

TonyJ1Contributor14 July 2020 20:23:23

162

diverdi wrote:
Hi Luke.
I am not an expert, but I'm in the same boat and I've discussed it with various parties.

As you have established, PT does not allow the same favourable treatment of share investments as you are currently experiencing. Any gain from sales (short or long term) is counted as capital gains and you are taxed. As far as I have established, at best, you can be taxed at lower brackets (I think 14.5 is the lowest) depending on the amounts involved; at worst, you pay 28% under NHR (first 10 years). I had some advisors suggest I move the portfolio to a kind of wrapper - however there were considerable are cost implications to this and it seemed to allow far less discretion on what was held in the portfolio, so I didn't pursue it.
Another option is to live off dividends - these are more favourably treated by NHR as I recall.

Costa Rica does appear more favourable in respect of taxation, BUT it is "the other side of the world" - I'm not sure how much proximity to the UK/Europe you may want.

If you are looking that side of the world, there's also Panama which has vary favourable tax regimes.

I hope this helps.. I am still looking for my answers but in the meantime I also converted a fair chunk of my portfolio to cash.

The 28% tax rate on capital gains is in the general law - may (or may not extend beyond the 10 years of the nhr). Interest and dividends will be tax free in Portugal under the nhr status (provided the country of source is not in the Portuguese black list. The 28% CGT becomes 35% if the country of source is in the Portuguese black list).