UK–Portugal Pensions and Taxation Guide

Pensions and Taxation Between the UK and Portugal

Financial planning should never be left until after relocation. Some adjustments must be made before moving, while others should be addressed immediately upon arrival. In particular, UK and Portuguese tax rules often align to your advantage, and the UK–Portugal Double Taxation Treaty can provide significant savings on pension income.

🛂 Visas and Tax Residency

• You must meet Portuguese visa and residence permit requirements, which since Brexit must be applied for before departure.

• Ensure you are recognized as a Portuguese tax resident and no longer considered a UK tax resident.

💼 UK Pensions

• Pension rules were broadened with the Pension Freedoms, allowing flexible access: annuities, lump sums, drawdown products, or combinations.

• The 25% tax-free lump sum available in the UK does not apply abroad, so this must be taken before leaving.

📑 Double Taxation Treaty

• Private and company pensions: taxable in the country of residence (Portugal).

• UK government and local authority pensions: always taxable in the UK, not Portugal.

📊 Taxation in Portugal

• Pension income is taxed under normal Portuguese income tax rates (14.5%–48%).

• The Non-Habitual Residency (NHR) regime offers a flat 10% tax rate on pensions for the first 10 years of residence.

🏷️ Non-Habitual Residency (NHR)

• Available to those who have not been Portuguese tax residents in the previous five years.

• Applications must be submitted by March of the year following the start of residency.

• Benefits include:

  • Exemptions on most foreign income (interest, dividends, certain capital gains).

  • A flat 20% tax rate for high-value professions in Portugal.

• Exceptions: UK government pensions and rental income remain taxable in the UK.

📌 Special Cases

• UK dividends may escape Portuguese taxation under the Treaty, while UK “disregarded income” rules can eliminate UK liability for non-residents.

• In practice, this can mean no tax is due in either country on certain UK dividend income.

🌍 Who Can Benefit

• The NHR regime is open to all nationalities, including non-EU/EEA citizens, provided they meet residency requirements