If you live in Portugal and you get income from the UK (State Pension, private pension, dividends, rent), the new UK – Portugal tax treaty is coming into force.
It sets the ground rules on who can tax what, and when.
When the new rules start
The treaty was signed in London on 15 September 2025 and it entered into force on 29 December 2025.
- Portugal: 1 January 2026.
- UK (tax withheld at source): 1 January 2026.
- UK Income Tax and Capital Gains Tax: 6 April 2026 (the UK tax year 2026/27 onwards).
- UK Corporation Tax: 1 April 2026.
If you have income that falls in the crossover period (January to early April 2026), treat it with care. Portugal moves first. The UK switches from the start of the UK tax year.
What the Portugal tax treaty does
- It decides who gets first taxing rights. Some income gets taxed where you live. Some gets taxed where it comes from. Some can be taxed in both.
- It helps stop double taxation. If both countries tax the same income, the treaty sets how relief should work, usually by giving a credit for tax paid in the other country.
- It boosts co-operation between tax offices. It expands information sharing and, in some cases, help with collecting tax debts.
This is not about your visa, your residency permit, or National Insurance. It is about tax.
The biggest point for most UK expats in Portugal – Pensions
Most pensions are taxed where you live
Under the new treaty, pensions paid to a tax resident of a country are taxed only in that country.
For most UK expats who are tax resident in Portugal, this points to Portugal as the place that taxes:
- the UK State Pension
- workplace pensions
- personal pensions and SIPPs
- annuities and similar pension income
This does not mean you “pay no tax”. It means Portugal gets the main taxing right under the treaty. Your actual bill depends on Portuguese rules and your wider income.
UK government service pensions (often taxed by the UK)
There is a separate rule for government service pay and pensions (paid by a state, or out of state funds). These are normally taxed only by the paying country.
In plain terms: many UK government service pensions can stay taxable in the UK even if you live in Portugal.
This often matters for:
- Civil Service pensions
- armed forces pensions
- police pensions
- some public sector pensions
There is an extra twist if you are not a national of the paying state but you are a national of the other state. That is less common, but it can change the outcome.
If you or your spouse have any government service pension, get this checked properly.
The other big issue – Property
Property is where many expats get caught out, because the tax rules often follow the location of the property, not where you live.
If you own UK property while living in Portugal
- Rental income: The UK usually keeps the right to tax UK property rental income. Portugal may also tax it because you live there, but Portugal should normally give relief so you do not pay tax twice.
- Selling UK property: The UK can tax gains on UK property even if you live in Portugal.
- Owning UK property through a company: If you sell shares in a company (or similar setup) that gets most of its value from UK property, the UK may be able to tax the gain. This matters if you planned to “sell the company” instead of selling the building.
If you have UK property, treat the sale as a separate project. Get advice before you exchange contracts, not after.
If you own property in Portugal
- Rental income: Portugal usually taxes rental income from Portuguese property.
- Selling Portuguese property: Portugal can tax gains on Portuguese property.
Even if the UK does not have the main taxing right, the UK may still expect you to report things in certain cases. The detail depends on your UK tax residence, domicile position, and your wider setup.
If you live in Portugal but your property is in a third country
If you live in Portugal but you own property in another country (Thailand, France, Spain, the UAE, etc.), you should assume:
- The country where the property sits often taxes rental income and sale gains first.
- Portugal may also tax it because you live in Portugal.
- Relief usually depends on Portugal’s rules and any treaty Portugal has with that country.
The UK–Portugal treaty only governs UK and Portugal. It does not fix double tax issues involving a third country.
Quick warning for higher-value setups
If you own property through a company, fund, trust, or partnership, do not assume the structure protects you from tax where the property sits. Modern treaties often let the “property country” tax gains when you sell interests in a property-heavy entity.
UK property and UK “property-rich” shares (the UK can still tax you)
If you sell UK property while living in Portugal, the treaty allows the UK to tax gains on that property.
Selling shares that get most of their value from property
The treaty also covers indirect property sales. If you sell shares (or similar interests) that got more than half their value from property in the other country at any point in the 365 days before the sale, the country where the property sits can tax the gain.
This can catch:
- shares in a company that mainly holds UK property
- certain property funds and structures
If you own UK property through a company or fund, do not assume “it’s shares, so it’s only taxed where I live”.
Dividends, interest, and royalties (limits on withholding tax)
If the paying country withholds tax before the money reaches you, the treaty can cap that withholding.
Dividends
The treaty sets a general cap of 10% on withholding tax on dividends paid across the border.
There is a 15% cap for certain dividends paid out of income from property by an investment vehicle that pays out most of that income and gets an exemption on that property income.
There is also a rule that can make some company-to-company dividends taxable only in the country of the recipient, if conditions are met.
For most individual expats, the practical point is the cap. If you get hit with withholding on dividends, the treaty may limit it.
Interest
The treaty caps withholding tax on cross-border interest at 10% in general.
It also has special lower rules for some bank interest and some state-related interest.
Royalties
The treaty caps withholding tax on royalties at 5%.
Information sharing and debt collection (the tax offices talk more)
Two parts of the treaty matter even if you never claim treaty relief:
- Exchange of information. The tax offices can share information that is relevant to tax enforcement.
- Assistance in collecting tax debts. In some cases, one country can help the other collect an enforceable tax debt, under set rules.
These parts take effect from the date the treaty entered into force, not from the later “start dates” above.
The practical takeaway is simple: if you live in Portugal, keep your reporting tidy in both countries where needed. Loose ends are more likely to surface.
FAQ
Where are my pensions taxed?
It depends on the type of pension and where you are tax resident.
- Most private and workplace pensions (including the UK State Pension): If you are tax resident in Portugal, the treaty points to Portugal as the place that taxes these pensions.
- UK government service pensions: These often remain taxable in the UK even if you live in Portugal.
Tax treaties set the framework. Your final bill depends on local rules and your facts.
Do I need to contact HMRC?
Often, yes, in one of these situations:
- You want UK tax code changes, or you are being taxed in the UK when you think you should not be.
- You need to claim treaty relief on income paid from the UK.
- You have UK rental income, a UK Self Assessment record, or a reason HMRC expects a return.
If you are unsure, start by listing your UK income types (pension, dividends, rent, interest, gains) and check what HMRC expects for each.
What happens if I sell UK property while living in Portugal?
- The UK can tax gains on UK property even if you live abroad.
- Portugal may also tax the gain because you live there.
- In many cases, you should get relief so you do not pay tax twice, but the amount and method depend on Portuguese rules.
If the property is held through a company or fund, the tax position can change again, especially if you sell shares instead of selling the property itself.
What if I have property in Portugal?
- Portugal usually taxes rental income and gains on Portuguese property.
- The UK–Portugal treaty does not “remove” Portuguese tax on Portuguese property.
- The UK may still have reporting rules for some people, depending on UK residence and how you hold the property.
If you own property in Portugal and you also have UK income (pensions, dividends, rent), treat them as separate lines. Do not assume one set of rules covers everything.
A checklist if you live in Portugal
- Know your tax residence. The treaty only helps if you are resident of one country under the treaty tests.
- List your UK income types. State Pension, private pension, dividends, rent, interest, capital gains.
- Separate government service pensions from everything else. They often sit under different rules.
- If you have UK property (or property-heavy funds), treat it as a tax project. Do not leave it until you sell.
- Keep paperwork. Pension statements, P60s, dividend vouchers, property records, dates of moving, and proof of residence.
- Get advice where it matters. The treaty gives the framework but your final position depends on your personal plans and action.