UK pensions in Portugal: how they are taxed under the 2025 convention

Which country taxes which pension

Article 17 of the convention in force since 29 December 2025 is one sentence: pensions and other similar remuneration paid to a resident of a Contracting State are taxable only in that State. For a Portuguese resident that covers:

• the UK State Pension;
• occupational and company pensions, defined benefit or defined contribution;
• personal pensions and SIPPs, including drawdown payments;
• annuities bought with pension funds.

Article 18 carves out government service pensions — paid by the British state, a devolved administration or a local authority for services to them: civil service, armed forces, police, fire, teachers’ and local government schemes. These stay taxable only in the UK, unless the pensioner is a Portuguese national who is not also a British national, in which case both countries may tax and Portugal gives credit. HMRC’s own list (INTM343040) decides the borderline cases: an NHS pension paid by the NHS Business Services Authority is non-government and therefore taxed in Portugal; one paid by a local authority is government.

• From 1 January 2026 Portugal applies the new convention; HMRC from 6 April 2026 for income tax
• 4 587 € deducted from pension income per pensioner before the brackets (8,54 × IAS)
• 12,5 % to 48 % Portuguese rates on the rest; couples may split the income
• DT-Individual the HMRC form that stops UK withholding on private pensions

What Portugal charges

Pension income is category H. Each pensioner deducts 4 587 € (or, if higher, the compulsory social contributions paid) and the balance goes into the general table at 12,5 % to 48 %. A couple may opt for joint taxation, which halves the income before the table and doubles the deductions.

Brackets of art. 68.º applied to the income after the deduction; figures rounded, before personal deductions (health, housing, general expenses) that typically cut a few hundred euros more. Exchange rate risk is yours: Finanças taxes the euro value on the day of payment.

The NHR era is over. New residents cannot obtain the 10 % rate on foreign pensions (closed to applications since 1 January 2024); those registered before then keep it for the rest of their ten years. The IFICI regime that replaced NHR excludes pensions.

What HMRC stops charging

Under the 1968 treaty most private pensions were also taxable only in the residence state, but the mechanics have not changed: HMRC keeps withholding PAYE until you file form DT-Individual, certified by Finanças as proof of Portuguese residence, and HMRC issues an NT code to the scheme. Tax withheld in the meantime is refunded through the same form. The State Pension is paid gross to non-residents in any case.

Government pensions keep their UK PAYE and are declared in Portugal only for the rate on your other income (exemption with progression under art. 21 n.º 5).

The 25 % lump sum: take it before you leave

UK rules allow 25 % of a pension pot (up to £268,275) to be taken tax-free. Portugal has no such exemption. Once you are Portuguese resident the lump sum is a pension payment taxed under the rules above, with one relief: the part that is a return of capital — contributions you paid from taxed income — is excluded, and where that part cannot be identified 85 % of an annuity payment is treated as capital (IRS Code, art. 54.º). The relief does not apply to sums built from employer contributions that were never taxed in your hands, which describes most occupational pots. A lump sum drawn while still UK resident, in the tax year before you leave, is the usual answer.

QROPS and transfers

Transferring a UK pension to a qualifying recognised overseas pension scheme in the EEA avoids the 25 % overseas transfer charge only while you are resident in the same country as the scheme; since 30 October 2024 the EEA exclusion from the charge has been removed, so a transfer to a Maltese or Irish QROPS by a Portuguese resident now triggers the charge. The convention gives Portugal the taxing right on the pension either way. For most British retirees a UK SIPP in drawdown, paid gross under the treaty, is simpler and cheaper than a transfer.

Health cover: the S1

A UK State Pension recipient living in Portugal obtains an S1 from the NHS Business Services Authority and registers it at the Portuguese health centre: the SNS treats you as a Portuguese beneficiary and the UK pays. The S1 also satisfies the consulate’s insurance requirement on a D7 file. Pre-pension-age retirees buy private health insurance until they qualify.

The steps

Questions from retirees