The treaty you may have read about no longer applies

For fifty-seven years the UK and Portugal shared a convention signed in 1968. It was replaced. The new Convention between the Portuguese Republic and the United Kingdom to Eliminate Double Taxation with respect to Taxes on Income and on Capital Gains and to Prevent Tax Evasion and Avoidance was signed in London on 15 September 2025.

On the Portuguese side it was approved by Resolution of the Assembly of the Republic no. 206-A/2025, published in Diário da República no. 249/2025, Supplement, Series I, of 29 December 2025. It entered into force on 29 December 2025.

Article 26 governs when it starts to bite, and the two countries are not synchronised:

That gap matters if you have a transaction straddling the change: the UK tax year running to 5 April 2026 is still largely under the old rules while Portugal is already under the new ones. Anything you read about UK-Portugal tax written before 2026 describes a convention that is no longer in force.

First question: are you Portuguese tax resident?

Nothing in the treaty matters until this is settled. Under Portuguese law you are resident if you spend more than 183 days here in any twelve-month period, or if you keep a home in Portugal in conditions suggesting you intend to hold it as your habitual residence.

If both countries claim you at once, Article 4 of the convention breaks the tie, in order: the state where you have a permanent home available; then your centre of vital interests; then habitual abode; then nationality; and finally by agreement between the two tax authorities. Note the wording of Article 4(1): someone taxed in a state only on income sourced there is not a resident of that state for treaty purposes.

Our moving to Portugal guide walks through the residency test and the first administrative steps.

Your pension: which article applies decides everything

This is the question we are asked most, and the answer depends on who paid for the service, not on who transfers the money.

Private and workplace pensions: Portugal only

Article 17 is short and decisive: subject to Article 18(1), pensions and other similar remuneration paid to a resident of a contracting state shall be taxable only in that state. So a UK workplace pension, a SIPP drawdown or a private annuity paid to a Portuguese resident is taxable in Portugal and not in the UK. This is the same principle as under the 1968 convention.

Pensions for service to the state: usually the UK

Article 18(1) carves out salaries, wages and pensions paid by a contracting state, or out of funds it created, to an individual for services rendered to that state. Those are taxable only in the paying state. A retired civil servant, a member of the armed forces or a teacher on a public-service scheme is normally taxed in the UK on that pension, not in Portugal.

Here is the change. The new article adds that where the individual is not a national of the paying state but is a national of the other state, that pension may be taxed in both states. A Portuguese national who worked for the British state and retired to Portugal is now in a shared-taxing-rights position, which is not where the 1968 text left them. The double tax is then removed by the credit method described further down, not by an exemption.

The UK State Pension: read Article 17

The convention contains no separate article on social security pensions. The UK State Pension is not remuneration for services rendered to the British state as an employer, so it does not fall inside the Article 18(1) carve-out. It sits in the general rule of Article 17, and is therefore taxable only in Portugal for a Portuguese resident.

Because this conclusion follows from the absence of a social security article rather than from an express provision, it is worth confirming for your own facts before you plan around it, particularly if part of your career was in public service.

What actually changed, in one table

Dividends: a new zero rate worth knowing about

Article 10 caps the tax the source state may charge at 10% of the gross dividend, or 15% where the dividend is paid out of income from immovable property by an investment vehicle that distributes most of that income annually and is itself exempt on it. That second rate is aimed at REIT-style structures.

The new part is Article 10(3): dividends paid to a company that is the beneficial owner are taxable only in the recipient's state where that company has held at least 10% of the capital of the payer for an uninterrupted period of at least one year including the payment date. Under the 1968 text the best available rate was 10%, and only for holdings of 25% or more.

If you run a UK company alongside a Portuguese one, or the reverse, this is the clause to model before declaring a dividend. It is a company-level relief and does not apply to dividends paid to you personally.

Capital gains: the property-rich company rule is new

Article 13(1) keeps the familiar rule: gains on immovable property may be taxed where the property sits. Sell a house in Cornwall while resident in Portugal and the UK may tax the gain, and Portugal will tax it too as part of your worldwide income, with relief given as described below.

What did not exist before is Article 13(2). Gains on shares, or comparable interests such as rights in a partnership or a trust, may be taxed in the other state where, at any time during the 365 days before the disposal, more than 50% of their value derived directly or indirectly from immovable property situated there.

The practical effect: holding UK or Portuguese property inside a company and selling the company instead of the building no longer moves the gain out of reach of the country where the property is. The 365-day look-back also blocks the obvious workaround of diluting the property weighting shortly before a sale.

Trusts and estates: an article written for British readers

Trusts are common in the UK and rare in Portugal, which is why Article 20(2) is unusual and easy to miss. Where an amount is paid to a Portuguese resident out of income received by trustees or personal representatives administering an estate who are UK residents, that amount is treated as arising from the same sources, and in the same proportions, as the income the trustees received.

In plain terms, the payment does not lose its character on the way through the trust. If the trust's income was UK rental income, your distribution is treated as UK rental income for treaty purposes, with the tax paid by the trustees taken into account. If you are a beneficiary of a UK trust or the estate of a relative, bring the trust accounts to your Portuguese accountant rather than just the amount received.

How Portugal actually removes the double tax

Portugal uses the credit method, not exemption. Article 21(1) provides that where a Portuguese resident has income or gains that may be taxed in the UK under the convention, Portugal deducts from its own tax an amount equal to the tax paid in the UK — but that deduction may not exceed the fraction of Portuguese tax, computed before the deduction, attributable to the income that may be taxed in the UK.

Portuguese domestic law says the same thing in Article 81 of the Personal Income Tax Code: the credit is the lesser of the tax paid abroad and the proportional share of Portuguese tax on that income, and where a convention exists the credit cannot exceed the tax the convention allows the other state to charge.

Two consequences people are regularly surprised by:

• The higher of the two tax bills wins. If Portuguese tax on that income exceeds the UK tax, you pay the difference here. The credit removes double taxation; it does not give you the lower of the two rates.
• Tax the treaty did not allow is not creditable. If the UK withheld more than the convention permits, the excess is not credited in Portugal — you reclaim it from HMRC. Getting the rate right at source is worth more than fixing it afterwards.

Where a convention exempts income but with progression, Article 81(9) still brings it into the calculation of your rate on everything else.

The anti-abuse clause changes how planning is judged

The 2025 convention carries a modern principal purpose test: treaty benefits are denied where, having regard to all relevant facts, obtaining that benefit was one of the principal purposes of an arrangement, unless granting it would accord with the object and purpose of the relevant provisions. Elimination of double taxation, non-discrimination and the mutual agreement procedure are carved out of that denial.

The 1968 convention had nothing of the sort. Structures built on the old text on the assumption that form controls outcome should be reviewed against the new one.

What has not changed

• Private and workplace pensions remain taxable only where you are resident.
• Rental income from UK property remains taxable in the UK (Article 6), and also in Portugal with credit relief.
• Royalties remain capped at 5%.
• Portugal still taxes residents on worldwide income, and you still declare UK-source income on your Portuguese return.
• The treaty allocates taxing rights. It does not decide whether you qualify for a Portuguese regime such as IFICI, which is a matter of Portuguese domestic law.

Frequently asked questions

Is there a new UK-Portugal tax treaty?

Yes. A convention signed in London on 15 September 2025 replaced the 1968 one. Portugal approved it by Resolution of the Assembly of the Republic no. 206-A/2025, published on 29 December 2025, and it entered into force that same day. It has applied in Portugal since 1 January 2026, and in the UK from 1 January 2026 for withholding taxes and 6 April 2026 for income and capital gains tax.

Where is my UK private pension taxed if I live in Portugal?

In Portugal only. Article 17 provides that pensions and other similar remuneration paid to a resident of a contracting state are taxable only in that state, subject to the public service carve-out in Article 18(1).

What about my UK State Pension?

The convention has no separate social security article, and the State Pension is not remuneration for services rendered to the British state as an employer, so it falls under the general rule of Article 17 and is taxable only in Portugal for a Portuguese resident. Confirm the position for your own record if part of your career was in public service.

I have a civil service or armed forces pension. Has anything changed?

Possibly. Article 18(1) still taxes it in the paying state, but it now adds that where the recipient is not a national of the paying state and is a national of the other state, both states may tax it. A Portuguese national with a British public service pension is affected; a British national is generally not.

If I sell my house in the UK, who taxes the gain?

The UK may tax it because the property is there (Article 13(1)), and Portugal taxes it too as part of your worldwide income, giving credit for the UK tax under Article 21(1) and Article 81 of the Personal Income Tax Code. The credit is capped at the Portuguese tax attributable to that gain, so if Portuguese tax is higher you pay the difference here.

Can I avoid tax by holding property through a company?

Not under the new convention. Article 13(2) allows the state where the property sits to tax gains on shares or comparable interests whose value derived more than 50% from immovable property there at any point in the 365 days before the disposal. The principal purpose test applies on top of that.

Do I still have to file in the UK?

It depends on what income you keep there. Unlike the United States, the UK does not tax on nationality, so leaving usually ends the obligation on non-UK income. UK-source income such as rent or public service pensions can keep a UK filing requirement alive. Confirm your position with a UK adviser.

Sources

• Convention between the Portuguese Republic and the United Kingdom to Eliminate Double Taxation with respect to Taxes on Income and on Capital Gains and to Prevent Tax Evasion and Avoidance, signed in London on 15 September 2025 — Articles 4, 6, 10, 11, 12, 13, 17, 18, 20, 21 and 26.
• Resolution of the Assembly of the Republic no. 206-A/2025, Diário da República no. 249/2025, Supplement, Series I, 29 December 2025 — Portuguese approval and official Portuguese text.
• Convention of 1968 (Decree-Law no. 48497 of 24 July 1968) — used for the comparison of what changed.
• Portuguese Personal Income Tax Code, Article 81 — credit for international double taxation and its limits.
• HM Revenue & Customs, Portugal: tax treaties — entry into force and effective dates on the UK side.

Written on 4 September 2026. General information, not advice on your situation: the article that applies to a pension depends on facts this page cannot see. Bring your paperwork and we will read it with you.