Portugal continues to attract expatriates from around the world. Its warm climate, rich culture, and relaxed lifestyle make it an appealing destination for those looking to retire or begin a new chapter abroad. For many, the benefits go beyond lifestyle: Portugal also offers specific tax planning opportunities for those who prepare in advance.
Whether you are still in the planning stages or have already made the move, understanding how Portuguese and UK tax regimes interact is essential. With careful planning, you can structure your assets more efficiently, reduce unexpected liabilities, and ensure your wealth is positioned to support both your own needs and those of your heirs.
Understanding Tax Residence in Portugal
The first step is determining when you will be considered tax resident. In Portugal, you are generally deemed resident if:
- You spend more than 183 days in the country in a 12-month period (split-year treatment may apply if you arrive mid-year).
- You have a permanent home available in Portugal, and it appears you intend to occupy it as your long-term residence, even if you have not yet completed 183 days there.
It is possible for spouses to have different residency statuses if one can show their main economic activity remains outside Portugal.
From the point you become tax resident, you are liable for Portuguese tax on worldwide income and gains, and you also become subject to Portuguese succession law.
Income Tax in Portugal
Portuguese residents must declare and pay tax on income from all global sources. Some capital gains are included in general income, while others may be taxed at fixed rates or exempt.
For 2025, scale rates for mainland Portugal range from 13% (income up to €8,059) to 48% (income above €83,696). In Madeira, rates start at 9.1% and rise to 47.52%. An additional solidarity surcharge of 2.5%–5% is applied to higher incomes above €80,000 and €250,000.
Investment income (interest, dividends, bond income, etc.) is usually taxed at a flat rate of 28%, or 35% if the funds are held within jurisdictions deemed tax havens. In some cases, you can elect to apply the scale rates if this results in a lower liability.
(Figures correct as of 2025; subject to change.)
Portugal’s NHR and IFICI Regimes
Portugal’s well-known Non-Habitual Residence (NHR) regime closed to new applicants at the end of 2024. Those already benefitting can continue for the remainder of their 10-year term, but it is advisable to review investments early to maximise the remaining tax advantages.
The replacement scheme, the Incentive for Scientific Research and Innovation (IFICI), applies only to certain professionals employed in high-value sectors. Qualifying individuals benefit from a flat 20% income tax rate for up to 10 years, plus potential exemptions on some foreign income and capital gains.
Pensions and Retirement Income
Pensions are a central consideration for many UK nationals moving to Portugal. The rules are nuanced, so careful planning is needed:
- UK state and occupational pensions are taxable only in Portugal once you are resident.
- UK government service pensions (e.g., civil service, military, police) remain taxable in the UK.
- There is no 25% tax-free lump sum entitlement in Portugal. If you intend to use this facility, it may be more tax-efficient to do so before leaving the UK.
From April 2027, UK pension funds will fall within the scope of UK inheritance tax, which could create additional exposure for your heirs. This makes pension reviews especially important for those planning retirement in Portugal.
Some residents may benefit from encashing their pensions under Portuguese rules, but the tax treatment varies. Professional, regulated advice is essential to ensure any decision reflects both UK and Portuguese taxation.
Property Ownership and AIMI
If you plan to buy property in Portugal, be aware of the Adicional Imposto Municipal Sobre Imóveis (AIMI) — a tax that applies to high-value Portuguese property regardless of where the owner lives.
- Liability begins once your stake in property exceeds €600,000 (€1.2m for couples).
- Rates start at 0.7% for individuals and 0.4% for companies.
- Higher rates of 1% and 1.5% apply to property values above €1m and €2m respectively.
(Correct as of 2025; subject to change.)
Understanding how AIMI interacts with general wealth tax rules is important when considering higher-value property investments.
Inheritance and Succession Rules
Portugal applies forced heirship by default. This means that a portion of your estate must pass to your spouse and direct descendants, usually at least half, regardless of your will.
However, under the EU Succession Regulation (Brussels IV), you may be able to elect for UK law to govern your estate. This must be clearly specified in your will, and professional advice is necessary to confirm whether this is suitable for your family.
Portugal does not impose a traditional inheritance tax. Instead, it levies stamp duty at 10% on Portuguese-situated assets. Transfers between spouses and direct family members are exempt.
UK inheritance tax (IHT) may still apply:
- UK assets always remain within the scope of IHT.
- Worldwide assets remain within scope for up to 10 years after leaving the UK.
- From April 2027, pensions will also be included.
Double taxation is usually relieved, but heirs will pay the higher of the two liabilities.
Timing Your Move
Because the Portuguese tax year runs from January to December, while the UK’s runs from April to April, timing your move can make a material difference.
For example, the decision on when to sell UK property or investments may affect whether you pay tax under UK or Portuguese rules. Each country applies different capital gains tax rates and reliefs. Reviewing your position before moving helps avoid unexpected liabilities.
Minimising Tax in Portugal
Tax-efficient planning does not stop once you arrive. It is important to remember that what worked in the UK may not be suitable in Portugal.
- ISAs lose their tax-free status once you leave the UK; gains and income may be fully taxable in Portugal.
- Portuguese-compliant investment structures, such as certain life assurance policies or bonds, may allow deferral of tax on investment income. Only part of the gain is taxable on withdrawal, and the effective tax rate can reduce over time.
- Pension structuring remains critical, especially in light of the 2027 UK IHT changes.
Each of these strategies depends on individual circumstances, so regulated advice is essential before making changes.
Integrated Wealth Planning
Financial planning works best when viewed as an integrated whole. Tax residence, pensions, property, investments, and estate planning all interact. Optimising one in isolation can sometimes create unintended consequences in another.
By reviewing your affairs holistically, you can help ensure your arrangements are tax-efficient, compliant, and aligned with your long-term objectives. Most importantly, this allows you to enjoy life in Portugal with confidence that your financial future is secure.
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
Recently, the Financial Conduct Authority released its Financial Lives Survey 2017, which suggests that many savers lack understanding of how their pensions work. The survey gathered responses from just under 13,000 UK consumers and aimed to gain an insight into their experiences of retail financial products and services.