Retirement and Investment Planning in Portugal

Optimising Tax Outcomes for UK Expats

1. Introduction

Portugal continues to be one of Europe’s most attractive destinations for UK retirees, offering a combination of lifestyle, favourable tax regimes, and residency pathways. However, tax efficiency is not automatic. For UK nationals considering or already residing in Portugal, understanding how pensions and investments are taxed is critical to preserving wealth and avoiding unexpected liabilities.

This guide explores:

• The key tax rules for retirees in Portugal

• How the NHR and NHR 2.0 regimes apply

• How the 85/15 pension rule works

• How UK investments are treated for Portuguese residents

• Timing strategies to optimise your financial position

2. Understanding Portuguese Tax Residency

Becoming tax resident in Portugal generally means spending more than 183 days a year in the country or maintaining a habitual residence. Once resident, you are taxed on worldwide income unless specific exemptions apply (e.g. NHR). Tax rates are progressive up to 48%, and investment income is taxed at flat rates unless elected otherwise.

3. NHR Regimes: Original & NHR 2.0

Original NHR (pre-2024 changes):

• Duration: 10 years

• UK pensions: Taxed at flat 10%

• UK dividends, interest: Often tax-exempt

• Capital gains: Usually taxable in Portugal

• Requirement: Register within 6 months of becoming tax resident

NHR 2.0 (Post-2024):

• Focused on professionals in “high value” sectors or returning emigrants

• Less favourable exemptions than original NHR

• Most pension and investment income taxed at standard rates

• May still be optimised with proper structuring

4. Pension Taxation & the 85/15 Rule

Key pension categories:

• UK Government pensions (e.g. NHS): Taxed in the UK, exempt in Portugal

• Occupational pensions: Taxable in Portugal unless exempt under NHR

• SIPPs & private pensions: Taxable, potentially under 85/15

The 85/15 Rule:

Where the source of capital vs. income in an occupational scheme is unclear:

• Only 15% is taxable in Portugal

• 85% is treated as capital return and not taxed

This rule does not apply to:

• Government service pensions

• Pensions where capital/income split is clearly defined

Doctors with both NHS and private pensions: Only the private pension portion might qualify for 85/15; NHS pensions are typically taxed in the UK only.

5. Investment Taxation: UK Assets and Portuguese Residents

5.1 Investment Income (Interest, Dividends, ISAs, Bonds):

• Taxed at a flat 28% rate

• Option to be taxed under progressive scale rates (13%–48%)

• ISAs lose their tax-free status when resident in Portugal

• Premium Bond prizes and UK dividends are also taxable

5.2 Capital Gains (Shares, Funds, Property):

• Gains on UK-listed investments are taxable in Portugal

• Portuguese tax on capital gains is 28%, with inflation relief on some assets

• UK property sales are taxable in both UK and Portugal; Portugal taxes 50% of gain at scale rates with DTA relief

5.3 OEICs, Unit Trusts, Securities:

• All distributions and disposals taxable in Portugal

• Loss of UK-based wrapper tax benefits

• Capital gains often taxed regardless of NHR status

5.4 Tax-Efficient Wrappers (Bonds):

• Portuguese-compliant insurance bonds can defer tax

• Tax is only due on withdrawal

• May reduce effective tax rate significantly if held >5 or >8 years

• Useful for those transitioning out of NHR

6. Integration with Pension & Withdrawal Planning

• Combine the use of 85/15 rule, bond wrappers, and careful timing

• For those approaching end of NHR, consider restructuring SIPPs or crystallising gains while still within the exemption period

• Partial withdrawals or phased pension drawdowns can reduce marginal tax impact

7. Inheritance and Estate Planning

• Portugal does not have inheritance tax, but stamp duty (10%) may apply

• UK assets may still fall under UK IHT if UK domicile retained

• Consider use of QNUPS or Trusts for succession planning

• New UK rules from April 2027 bring foreign pensions into IHT scope—especially relevant for UK expats abroad

8. Timing Considerations & Strategic Restructuring

• Review UK investments before Portuguese residency to avoid immediate tax hits

• Consider replacing ISAs and UK funds with compliant investment bonds

• Exit or restructure property portfolios ahead of becoming tax resident

• Evaluate whether to draw pension income under UK or PT rules (and when)

9. Summary Table: Key Tax Treatments

10. Next Steps & Professional Advice

Retirement in Portugal can be both rewarding and tax-efficient—if structured properly. Work with cross-border specialists who understand:

• Pension consolidation

• Investment restructuring

• Trusts and estate planning

• Double taxation agreements

The earlier this planning takes place, the more options you’ll have.

Your retirement shouldn’t be taxed more than necessary, start early, get expert help, and enjoy the lifestyle you’ve worked hard for. Reach out for an informal discussion.

As you embark on this exciting chapter of your life, keep these tips in mind. With careful planning and a proactive approach, you can navigate your finances with confidence and make the most of your expat experience.