movingtoportugal

I love it in Portugal, and often say that moving abroad is the best thing we ever did. However, I’ve always been determined to ensure that my blog tells it like it is. On that basis, right now I’m pissed off, disillusioned and demotivated.

The reason? Portugal’s 2013 state budget.

Portuguese news doesn’t always make it beyond our shores, but the 2013 budget is so hardcore that high-profile news reports have appeared everywhere, from the New York Times to Al-Jazeera. Typical words used include “suffocating,” “harsh,” and “controversial.” The opposition socialists describe the budget as a “fiscal atomic bomb.”

And let’s not forget that even before this budget, Portugal had already, over the past two years, been hit with the second-largest overall tax rises of any country in the world. (For those interested, the only country with larger increases was Argentina).

Portugal -Money's too tight to mention

So, what does it mean to us?

Well, for a start, we’re still smarting from the additional 3.5% extraordinary tax that we paid a couple of months ago on our income from 2011. When this was imposed, it was supposed to be a one-off. Well, that’s not how it turned out, because we now have to pay an extra 4% on everything we earn next year as well.

They’ve also increased the overall income tax rates and reduced the number of bandings in such a way as to push us into a higher bracket. Now, I’m not nearly clever enough to do the sums without a simulation from my accountant, but from a quick glace it looks like the rate we pay on most of our income could be going up by about 7.5%.

Add that on to the extra 4%, and we could be handing the government up to an additional 11.5% of what we earn in 2013.

Just imagine that for a moment. Think about what you earn and imagine getting a bill for 11.5% of it, ON TOP of the tax you already pay.

If you really want to wind me up you can tell me that “things are tough in the UK too.” But they’re not really are they? Without the UK’s generous tax-free allowance on the first £7000 of each person’s earnings, we were already paying more income tax in Portugal before any of these austerity measures.

Let’s put our personal situation in perspective. I can’t deny we are fortunate enough to be relatively high earners by Portuguese standards. It’s tasteless to go into detail, but suffice to say that between the two of us we bring in the same as several people on the Portuguese average wage. However, and this is the important bit, no more than a couple of thousand Euros annually comes from Portugal. My wife is paid by a UK based company, and I have clients everywhere from the US to Australia. But, as fiscal residents, we pay all of our tax to the Portuguese government.

They keep on taking our money!

If I (or indeed anyone), thought that the tax increases were going to make a blind bit of difference to the economic situation in Portugal (or the world), then I would adopt a more stoical attitude. But these increases are only estimated to bring in €3 billion.

Last year, Portugal borrowed €78 billion from the International Monetary Fund and the European Central Bank at an interest rate of around 5%. Well, I’m no economist but the €3 billion that comes at the cost of crippling the middle classes (and stopping them spending) isn’t really going to be much help.

Meanwhile, anyone who lives in Portugal is constantly aware of the country’s black economy, estimated to equate to 24.8% of GDP in figures going back as far as 2010. All of this “how much for cash?” business adds up to rather a lot, and in Portugal this culture is endemic.

That all seems rather unfair to a couple like my wife and I who have always felt civically and morally bound to declare and pay. Sadly, when the government has to pick a demographic of people to screw money from, those they know are honest enough to already pay tax are the easiest target. I see the government equally culpable for not doing anything about this as those who haven’t completed an honest tax return in years.

Last night, protesters surrounded parliament in Lisbon. Although the demonstration calmed before they managed to storm the building, the atmosphere was tenser than in previous austerity protests.

Protests are becoming less friendly

Protesting’s not in my nature. I see little point unless you have a better idea of what the government should do. Sadly, the lack of such an idea is what makes this situation so very depressing.

I do have a strategy, however, which alone acts as proof that the government’s plans are misguided. For a start, I’ve stopped spending, as everyone does once a siege mentality kicks in.

Once the new tax bandings are formalized, I will be asking my accountant to do some simulations – comparing our tax liability in Portugal with what it would be in other countries, and also looking at whether it would actually be worth us earning a little less to push us down the tax bandings. Given that there is social security to pay as well, we arrive at a point where we are left with so little of every extra €100 we earn, we’d be better off not doing the work and spending the time picking fruit and making jam and chutney.

I’m not the only “well off,” taxpaying expat considering this strategy either.

So, hats off to Portugal’s finance minister for creating a budget that will either cause us to deliberately earn less and adjust our standard of living, or frighten us off to another country, taking all of our tax revenue with us. Well done, indeed.

After moaning so much, it’s probably not the best time to draw your attention to my book about moving abroad to Portugal, but it’s worth a try – the royalties might help us pay our next tax bill – see below!

Moving to Portugal: How a young couple started a new life in the sun – and how you could do the same

Image credits: Geograph, Photopedia

Back in 2010, I produced a Portugal cost of living post, which has turned out to be one of the most widely read posts on the blog.

While much of the article is still relevant, some costs have changed. As cost of living questions are still very popular amongst newcomers to the expat forums, I have decided to revisit this topic – both to dispel some myths and to help those considering a move to this wonderful country.

Cost of living is about far more than the simple cost of individual items and services. One mistake many new immigrants make is to focus too much on comparing “like for like.” If you plan to move to Portugal only to eat English food, drink English drink and watch English TV, then things will get far more expensive than they need to.

Living like the locals enriches the experience of moving abroad, so you will notice that I have added some tips on where savings can be made.

ACCOMODATION COSTS IN PORTUGAL

An excess of empty property has pushed down accommodation costs in Portugal. As before, I won’t try to provide sample costs of property for purchase, as estate agent’s websites will give you a far better idea than I ever could.

Despite some bargain prices, unless you have a hefty deposit, the economic climate may preclude you from getting a mortgage. This isn’t necessarily a bad thing right now.

Continuing instability in the Eurozone and the chance that prices may get lower still means that renting for a while can be a good plan. For new expats, this should always be the strategy anyway – why not give yourself a chance to check that Portugal is definitely right for you before committing, and get a feel for the exact area you wish to live in?

Portugal Rental Property can be Very Affordable

Rents have come down a little since I produced my cost of living in Portugal article back in 2010. In our area of the East Algarve, a good two-bedroom apartment with shared pool can be found for around 400 euros per month. In more rural / less touristy Portugal, you will find options for less than this, while more urban areas will be more expensive.

1000 euros per month still puts you into “villa with a private pool” territory. Given that you can pay more than this for a poky flat in a nasty area of London, this is one of the areas where Portugal can still be considered cheap.

TIP: You REALLY need to be in Portugal to find the full selection of available rental options. In our area, almost everyone you meet knows someone who is renting apartments, and few of these ever find their way onto English language websites.

UTILITY COSTS IN PORTUGAL

While rental property has gone down a little, our utilities are up.

Obviously, I can only guide you based on our experiences – everyone’s utility usage differs. Our costs are based on two people, year round, in an apartment with 2 bedrooms and 2 bathrooms. We work from home so are in all day, and we don’t hold back in terms of using air-conditioning or heating. We run various computers, a fridge freezer, cooker, washing machine and dishwasher. Our gas is purely for water heating and the hob. For around eight weeks of the year, there are four or more people here due to guests staying.

Utility bills in Portugal can be high

Our costs currently average out at:

Electricity – 80 euros per month (includes TV license).
Gas – 35 euros per month.
Water – 35 euros per month.

TAXATION IN PORTUGAL

As part of Portugal’s austerity measures, taxes are up significantly since I last discussed the cost of living in Portugal.

In our own experience, with earnings that are mid-range for the UK but very high for Portugal, we pay significantly more income tax than we would in the UK. Across our entire income, we pay around 36%.

It’s impossible to go into much detail on taxation, as everyone’s situation is different. Some professions can take advantage of the non-habitual resident scheme and pay a flat rate of 20%. Married couples with only one worker can combine their allowances and perhaps end up better off than in their former country. The only thing I will say is that everyone needs good accountancy advice. It took us a long time to find an accountant we could rely on – so contact me if you need the details.

Social security should be mentioned here too. If you are self-employed and working on green receipts (reciebos verdes), the minimum monthly social security payment in most circumstances is around 185 euros. The size of this bill shocks some people – it doesn’t, however, kick in until you have been self-employed here for around 13 months.

MOTORING COSTS IN PORTUGAL

It shocks our friends when we tell them that petrol in Portugal is as expensive, if not more so, than it is in the UK.

Driving in general is expensive here. Road tolls are widespread and the free roads that can be used as an alternative are no fun at all. To give you an idea of toll costs, a one-way journey from the Algarve to Lisbon costs around 19 euros in tolls, and a trip from one end of the Algarve to the other on the A22 is around 9 euros.

All this, of course, is if you have a car, and there comes the biggest shock of all.

Cars are Expensive in Portugal

Cars are terrifyingly expensive, and this is particularly relevant at the lower end of the market. The kind of cars that go for £500 in the back of the Autotrader will set you back up to 4000 euros here. This is offset a little by the fact that the climate means cars don’t really rust, but the concept of finding a “cheap little runner” doesn’t exist here.

Even when talking about nearly new, costs differ massively with northern Europe. Our car cost around 11500 euros – and we could probably have found the same for around £7000 in the UK – the exchange rate does NOT cancel that out!

Car tax is dependent on emissions – we only pay about 70 euros per year. However, relatives with a gas guzzling sports car almost have to place an extra zero on the end of that figure!

PUBLIC TRANSPORT IN PORTUGAL

Portugal’s public transport system is cheap and reliable. Just like London, Lisbon is a place where car-free life is possible and arguably easier. Daily travel cards for the Lisbon area only work out at around 4 euros a day – a pleasant surprise to someone used to paying well over £10 in London.

Of course, public transport is only of use in areas it covers. Even here in the Algarve, there are places with only a very infrequent bus service. Some bus routes don’t run at all at the weekend. The Algarve’s single train route is better, but very slow from end-to-end, taking at least double the time of a road journey. In addition, many of the Algarve’s stations are nowhere near the towns they serve, landing foot passengers with a bus or cab journey at the end.

Public Transport is Inexpensive in Portugal

So, while Portugal has good public transport, a car is a necessary evil in many areas – making it doubly important to take notice of the motoring costs.

FOOD AND DRINK COSTS

In terms of food and drink, there have only been small changes since I last discussed the cost of living in Portugal.

It’s still possible to live cheaply, IF you are prepared to eat “Portuguese style.” This means concentrating on pork and chicken, basic fresh salad ingredients and vegetables, in-season fish and lots of beans and rice.

Once you get into imported items, things get more expensive, though perhaps not as much so as a couple of years ago.

Supermarkets seem to be wising up to the items that expats want and things like curry pastes, Mexican ingredients and Heinz baked beans have got a little (if not much) cheaper. Of course, British expats in the Algarve also now have Iceland in Albufeira!

Some Food is Good Value in Portugal

The longer you live in Portugal, the more you learn to spend less on food and drink. First off, many people here have families with land. Once you get to know people, you may find you have more free oranges, apricots and figs than you know what to do with!

You also get a feel for what to buy where. It’s possible for us to spend either 1 euro or 4 euros on the same jar of pesto within 5 miles of our front door, depending on the supermarket we choose.

It’s all about visiting the markets and getting friendly with stallholders. Finding out who to go to for clams and when the ladies come round with the huge, cheap boxes of strawberries. Portugal is a perfect place for those who can visualize that huge box of strawberries as a cake, a sorbet and a few jars of jam.

However, those who want convenience food and UK-style supermarket shopping are likely to pay heavily for the privilege and miss out on what Portugal really has to offer.

Onto drink; yes, wine is still cheap (we are currently working our way through a very drinkable red Capataz that came in a 5 litre box for just 5 euros!) Beer is cheap too, if you stick to local brews, but if you start picking up Corona and Carlsberg, it can be more expensive than in the UK. If you’re struggling to find the GOOD cheap wines, take a look at Food and Wine Portugal’s wine section.

Food and Wine Portugal

A final tip: much of Portugal is very close to Spain. It’s worth getting used to the things that are cheaper or better there. We go every couple of months and come back with Mexican ingredients, Iberico ham, asparagus and good cider. International shopping can be fun.

ENTERTAINMENT COSTS IN PORTUGAL

If entertainment means eating out, then Portugal can still be a bargain, with many places still offering bargain 3 course meals and “pratos do dia.”

Of course, in the cities and the touristy parts of the Algarve, the sky’s the limit. We have Michelin-starred restaurants and beachfront bars that aren’t scared to charge €8 for a mojito, but it’s possible to have cheaper fun almost everywhere, if, of course, you have the self-discipline to stick to the cheaper restaurants and bars.

For expats, entertainment often means spending time with friends from back home, either in Portugal or in another country. Here things get expensive.

Flight costs are on the up. When we first moved to Portugal in 2009, it wasn’t unusual for my wife and I to manage to both get to London and back for under £100 off-season. Bargains like this just don’t seem to exist any more. Baggage charges and other fees have started to get daft too.

Even worse can be trips back for work or weddings, when travel dates are non-negotiable – £400 each to London and back is not unheard of.

When friends and family come to Portugal, things get expensive too. Essentially, you have to get used to being with people who are ON HOLIDAY several times per year. Wonderful though this is, people on holiday want to go to beachfront bars, eat in good restaurants and drive to see the sights.

Beach Views Sometimes come at a Price

Although people invariably pay their way, it’s impossible to avoid the fact that being “on holiday” is expensive, even if you live in the country. All expats should be aware of this.

As before, I’m going to finish off with the costs of a selection of random items:

1 Bottle of Super Bock in a supermarket – 60cents
1 Bottle of Corona in a supermarket – €1.30
Pack of 6 thin (bifana) pork steaks – €1.50
2 x fillet steaks from an English butcher – €15
1 bottle of mouthwash – €6
Paracetomol (16 pack) – €2.50
Cough Syrup – €15
6 fresh sardines from market – €1.50
Bottle of drinkable red wine (Real Lavrador) – €1.50
Bottle of rather good red wine (Monte Velho) – €3.80

Want to find out more about moving to Portugal – buy our book!

Moving to Portugal: How a young couple started a new life in the sun – and how you could do the same

US Readers can find it here

CURRENCY TRANSFERS TO PORTUGAL

If you are moving to (or from!) Portugal, you will be well advised to find an efficient way to transfer money from the UK. Like in Britain, Portuguese banks very in the exchange rates and charges applied to international payments. The difference in rates between different banks and brokers when sending money to Portugal can be up to 4%, which makes a huge difference if you are transferring a large amount across to buy a property for example.

Usually you will be best off using a currency broker for any transactions over a couple of thousand Euros. Not only will this give you access to preferential exchange rates, which can save a small fortune, but you will receive a personal service along with low (or zero) charges for your transfers. If you have a large transaction to undertake, a reputable company will also keep you informed of rate movements and help you decide when to secure your exchange rate.

You should only use UK currency companies if they are classed as “Authorised Payment Institutions” under the FSA, which ensures your funds are held in safeguarded client accounts. One such company is Currency Index, who offer some of the best exchange rates around, and are well versed in the Portuguese banking system as well as that in the UK. You can get in touch for a free consultation and quote on your own transactions, at www.currencyindex.co.uk

If you have any questions about the cost of living in Portugal, please feel free to leave a comment below, and I will get back to you.