So, you’re thinking about escaping the UK for Portugal? Good choice—warmer weather, great food, and possibly a much lower tax bill. But before you swap your morning commute for a beachside espresso, let’s clear up a few things about tax residency, UK income tax, and how to make sure you don’t get an unwelcome bill from HMRC when you least expect it.

Corporate Tax: Will Your Business Still Be Taxed in the UK?

If you own a UK company, you might be wondering whether HMRC will still want a slice of your profits. The short answer: probably. A UK-incorporated company is normally UK tax resident. Even if you run it from a hammock in the Algarve, UK law says “nice try, but we’ll still tax you.”

The exception? If a Double Tax Treaty (DTT) steps in. The UK-Portugal treaty says your UK company’s profits are only taxable in Portugal if it has a Permanent Establishment (PE) there. No Portuguese office? No PE. No PE? No Portuguese tax. (Although if your business is just you and a laptop, check with a tax expert to be sure you’re in the clear.)

An Alternative: Moving Your Business Offshore

Now, if you’re thinking, “I’ll just move my company to a tax haven,” that’s an option too. Jersey or Guernsey could work, but here’s the kicker—UK tax law follows management and control rules. Meaning, if you’re still calling the shots from the UK (or appear to be), you could still be taxed there. Moral of the story? Get proper advice before you find yourself caught in a tax tug-of-war.

Personal Tax: What Happens to Your Income?

So, you’ve made the leap and are now sipping Vinho Verde in Portugal. What happens to your UK income?

• UK rental income - Still taxed in the UK. The only escape? Sell up or move your properties offshore (tricky, but possible).
• Interest on UK bank accounts - Also taxable. Solution? Move your savings offshore to Jersey or Guernsey.
• Salary from a UK company - Only taxable if you work in the UK. If you do all your work from abroad, you’re probably in the clear.
• Dividends from a UK company - Maybe taxable, but under the UK-Portugal treaty, the max tax hit is 15%—not bad compared to UK income tax rates.

How to Become Non-UK Resident (And Stay That Way)

Becoming non-resident for tax isn’t as simple as just moving abroad. The UK has strict rules, and if you get this wrong, HMRC will happily treat you as a resident (and tax you accordingly). The key tests:

1. Automatic Non-Resident Test

You’re automatically non-resident if you:

• Spend fewer than 16 days in the UK (if you were resident in any of the last three years).
• Spend fewer than 46 days (if you’ve been non-resident for three years).
• Work full-time abroad (35+ hours per week) and spend less than 90 days in the UK, with fewer than 31 UK workdays.

2. Automatic Resident Test

You’re automatically resident if you:

• Spend 183 days or more in the UK.
• Have a UK home available for 91+ days and stay there at least 30 days in a tax year.
• Work full-time in the UK for any 365-day period.

3. The “Sufficient Ties” Test

If neither of the above settles the matter, the number of days you can spend in the UK before HMRC reclaims you depends on your UK ties. With fewer ties than your typical accountant’s wardrobe, there are five key ties that HMRC considers:

• Family tie – Spouse or minor child in the UK.
• Accommodation tie – A home in the UK available for 91+ days.
• Work tie – Working 40+ days in the UK.
• 90-day tie – Spent 90+ days in the UK in either of the last two years.
• Country tie – The UK is where you spend most nights.

Having worked out how many ties there are, we also need to consider how long you've been a UK resident. If you've been a UK resident for at least one of the last three tax years, then the number of days spent in the UK in the current year matters. The general rule is: the more days you spend in the UK, the more likely it is that you will be considered a UK tax resident.

Here are the guidelines based on the number of days you spend in the UK:

• 16 - 45 days – You need at least 4 ties to be considered a UK resident.
• 46 - 90 days – You need at least 3 ties to be considered a UK resident.
• 91 - 120 days – You need at least 2 ties to be considered a UK resident.
• Over 120 days – You need at least 1 tie to be considered a UK resident.

The more ties you have, the fewer days you can safely spend in the UK before HMRC pounces.

What If You End Up Tax Resident in Both the UK and Portugal?

If both countries claim you as a tax resident, the UK-Portugal Double Taxation Treaty comes to the rescue. The tie-breaker rules decide:

1. Where your permanent home is.
2. If you have homes in both countries, where your economic and personal interests are strongest.
3. If still unclear, where you physically spend more time.
4. If all else fails, your nationality.

(If that still doesn’t settle it, be prepared for discussions with tax authorities on both sides.)

Split-Year Treatment: A Silver Lining

If you leave partway through a tax year, the UK might treat you as resident for only part of it. This helps if:

• You start full-time work abroad.
• Your partner moves abroad for work, and you follow.
• You sell your UK home and settle elsewhere.

It’s not automatic, so you’ll need to claim it on your tax return.

Final Thoughts

Becoming Non-UK resident is a great way to cut your tax bill, but the rules are a minefield. Get it wrong, and you could face surprise tax demands. Get it right, and you could enjoy a much more tax-efficient lifestyle in sunny Portugal.

Want expert advice? Schedule a meeting before HMRC does.

Categories: Insights