This week we talk to Alan Bowker, 64, a former Scottish marketing account manager who has moved to Portugal for his retirement.
Regular monthly income:
Rental income: £ 1,167 Sipp draw: £ 2,000 Professional pension: £ 1,958
i’s money newsletter: savings and investment advice
Total: £ 5,125
Regular monthly expenses:
Mortgage: £ 0, Rent: £ 450, Council Tax: £ 150, Utilities: £ 25, Broadband / Landline: £ 0, Mobile Phone: £ 10, Bank Loans: £ 500 (partial rental purchase) , Home and contents insurance: £ 20, Car insurance: £ 20, Private health insurance: £ 35, Other health care: £ 35 (dental, prescriptions, opticians), Life insurance: £ 170, Car: Maintenance / MOT / Tax £ 60, Low Budget Buy / Renew: £ 200, Water: £ 0, Groceries: £ 150, Transport: £ 100, Gifts: £ 600, Holidays: £ 850, Streaming and Subscription Services: £ 12, Clothing: £ 75, Charity: £ 8, Leisure: £ 50 (Books, CDs, Impulse), IT / IT: £ 60, Home repair and maintenance: £ 75, Tools and repairs: £ 75, Social and catering: £ 200 , Rental maintenance: £ 75, Black box: £ 400 (accounting fees, one-off purchases like a DJI Fly drone)
Total: € 4,405
I am a retired Marketing Account Manager from the West Coast of Scotland now living in Portugal as a non-habitual resident. This means that I am taking advantage of the country’s generous tax system, which allows expatriate retirees to earn their pension income tax-free for 10 years.
I have lived in Scotland for most of my life, although I have traveled a lot for my job. I became a telecoms engineer after leaving school, then moved into marketing and sales for IT companies. I was laid off at the age of 48 and this was my last major job. After that I trained as a financial advisor but only did it for a few years. I mostly gave advice to people on mortgages, but I qualified right before the 2008 financial crisis so I didn’t make a lot of money.
I was lucky enough to have access to a generous final salary pension from the age of 55, which relieved me of having to work (although I divorced at the same time, which was a huge blow. financial).
A few years ago a friend asked me if I had considered moving to Portugal, which is known for its tax incentives for expatriates. The rules changed last year and expats now have to pay a 10 percent flat tax rate on retirement income, but I moved before the changes.
I came in January 2019 and live in the Algarve region with my partner. I stay in a rented apartment between January and June, then spend two to three months in the UK and the remaining three to four months in Asia. I still own my house in Scotland and rent a place in Chonburi, Thailand all year round so I have a familiar place to stay (it’s only £ 125 per month so I’m happy to pay this ).
Living in Portugal means that I currently pay no tax on my income, which totals around £ 61,500 per year. If I lived in the UK I would pay 40% tax. 100 on a portion of that amount because I would be considered a higher rate taxpayer. To be considered an expatriate I cannot stay in the UK for more than 90 days per year and to be considered a Portuguese resident I have to stay 184 days per year (or six months). This is why I travel regularly between places.
The coronavirus pandemic has been a nightmare for the past year. I flew to the UK in July of last year but international flights were canceled and I couldn’t get out until my 90 days had expired. Fortunately, the HMRC has allowed some leniency for expats stranded in the UK. In the end, I managed to get a flight to Portugal but my partner had to go back to Thailand under her visa rules, so we were separated for months.
My income consists of an occupational pension which pays me a fixed income each year, and a private pension in the form of Sipp. With the Sipp, it’s up to me to decide how much I withdraw as income. I keep track of my investment portfolio on a spreadsheet and withdraw 3 percent per year. It’s paid as an annual lump sum into my bank account, and I’ve set myself a monthly budget from that (which is £ 2000 per month this year). I also own three rental properties in Scotland which gives me an additional income of around £ 1,167 per month. I will receive my UK state pension next year, and it will also be tax exempt.
When it comes to my investments, my money is all in stocks (or stocks). Bonds are sometimes seen as a safer bet, especially for those who rely on investments for income, but my working pension gives me a stable income, which allows me to take more risk. I invest in a range of diversified funds that track global equity markets, with a focus on Europe and the United States.
I’m relatively frugal (I’m Scottish after all) but would say I live very comfortably. I like to eat out, but Portugal was on lockdown for the first three months of the year, so that was not possible. I have access to a swimming pool at a nearby hotel and I like to visit other parts of the country.
I moved to Portugal before Brexit and wasn’t too concerned about it all. I found a paperback called Living in Portugal by the consultancy firm Blevin Franks particularly useful. I moved before Brexit was ratified so I could easily apply for Portuguese residency. But I have friends who did not apply and now find themselves stranded in the UK due to Covid and unable to return to Portugal because they are not a Portuguese resident.
What will I do after my tax exemption status in Portugal expires after 10 years? I am not sure. I can stay here or consider returning to UK or elsewhere. If I stayed in Portugal the income tax rate would be around 33% which would be higher than in the UK. So unless there are some big changes, long term commitment to a substantial home is unlikely.
Fortunately I still have a lot of time to think about it, and so far I’m very happy with my current situation.