Interest/Dividends better than capital gains for Portuguese NHR - now what ?

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Interest/Dividends better than capital gains for Portuguese NHR - now what ?

Post by NHRinvestor2024 »

I'm a Portuguese NHR tax resident so can get interest and dividends tax free from many countries - and have Polish and British citizenship.
I recently sold my house and moved to Portugal in 2023, just before Portugal ended its NHR scheme.

The current situation is that interest and dividends are tax free (provided they are not from tax havens), and capital gains are taxed at 28%.

I've about $900K invested via Schwab in ultra short term T bills that yield over 5% in interest paymemts which I am happy with. But I've discovered that were I to die this would fall under American Estate taxes, so I will be moving the funds to Europe. My current plan is to buy Irish domiciled UCIT EFTss with a focus on paying out income as opposed to capital gains. (Capital gains are taxed at 28% in Portugal - so distribution not accumulating).

However, it seems that dividends, interest are paid to the Irish domiciled UCIT EFTs will often be subject to withholding taxes at source before they are paid into the EFT, and that payments from the Irish EFT to me will be classified as dividends.

I'm a bit surprised at how low the yields are on bond and dividend orientated UCITs (3-4% ).

Does anyone have recommendations of Irish domiciled UCIT EFTs UCITs that pay the highest yields.

Are there any EFTs structured for investors who have a higher tax rate on capital gains than dividends so that if the capital value of the bonds.equities
increases they pay it out as dividend and not as capital gain. I am not allergic to capital gains,, one of the advantages of owning stocks as opposed to bonds is that in principle they can provide some relief against inflation, albeit taxed. If it turns out that interest rates are on the way down I suppose there will be capital gains on the bond UCIT.

Are there EFTs that invest only in countries that do not withhold tax on dividend payments ... my-account
Seemingly according to Degiro ... my-account a dividend distribution EFT that only invested in Hong Kong or UK listed companies would have a considerable advantage ?
If I am correct are any such available.

I also am wondering about which brokers to use that are for sure not US HQ-ed apart from Degiro. Degiro is an option but having all my eggs in the Degiro basket seems risky.

Any thoughts suggestions are most welcome.

Many thanks
Posts: 210
Joined: Thu Feb 13, 2014 2:11 am

Re: Interest/Dividends better than capital gains for Portuguese NHR - now what ?

Post by DoctorE »

I would caution against yield chasing. Consider investing as a total return rather than yield.

A global equity UCITS will pay around 2%
A global bond UCITS will yield around 5-7% depending on duration, corp vs gov, credit risk (high yield or not)
A global UCITS REIT will yield around 3.5%

A sensible long term allocation like 70/30 equity/bond should yield around: 3.2%. Don't forget that this has some 12-15% withholding tax baked which is not reclaimable, that the UCITS fund incurs from various countries.

Consider the amount of yield distributed should make sense with your overall withdrawal strategy from your portfolio. 2.0-3.5% of the value is a reasonable amount to spend for a long timeframe with inflation protection and real growth of the principal in mind. Just because you setup your portfolio with energy, utilities, REITs, HY bonds that throw off 5-7%+ doesn't really mean you can spend it all and expect long term appreciation after inflation of your principal.

Careful with bid/ask spreads on illiquid UCITS. Don't buy ones that are too small in AUM because there's a risk the issue will liquidate it/close it. Have you researched on JustETF for example?

That being said, once you have your desired asset allocation in place, you should diversify brokers (IBKR IE, Saxo, SwissQuotes being the big Tier-1 in EU) and issuers (Blackrock, Vanguard, Amundi, SSGA) as well.
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