UK-Portugal Tax Treaty

What This Guide Covers

The UK-Portugal treaty framework changed for 2026 tax periods. This guide explains what is now in force, which rules apply by tax year, and the treaty points that matter most for UK-connected taxpayers in Portugal.

If you only remember the pre-2026 treaty, you are likely using outdated assumptions.

2026 Treaty Update: What Is In Force Now

A new UK-Portugal Convention was signed on 15 September 2025 and entered into force on 29 December 2025.

It generally applies:

• In Portugal: for taxable periods beginning on or after 1 January 2026.
• In the UK: for income tax and capital gains tax from 6 April 2026, and corporation tax from 1 April 2026.

For those periods, the older 1968 convention is no longer the governing text.

How the Treaty Actually Works

The treaty allocates taxing rights between the UK and Portugal. It does not remove filing duties by itself. You still need correct classification, consistent positions, and proper relief claims in both jurisdictions.

The practical workflow is always the same:

1. Classify income under the correct treaty article.
2. Confirm which country has primary taxing rights.
3. Apply relief (usually credit or exemption) in the second country where needed.
4. Keep both filings consistent with one documented position.

Residence Tie-Breaker (Article 4)

In dual-residency years, treaty residence is determined through tie-breakers (permanent home, centre of vital interests, habitual abode, nationality, then competent authority process).

This matters most in year-of-move cases. Getting residence wrong distorts all downstream treaty claims.

Pensions: Still the Highest-Impact Area

For most British expats, pensions remain the largest treaty-sensitive income category.

Private Pensions (Article 17)

Private pensions are generally taxable only in the country of residence. For Portuguese residents, that usually means Portuguese taxation.

Government Service Pensions (Article 18)

Government service pensions are generally taxable only in the paying state. A nationality-based exception can apply where the recipient is resident and national of the other state and not a national of the paying state.

Classification is technical: not every pension connected to public institutions qualifies as a government service pension.

UK State Pension

For Portuguese residents, UK state pension is generally treated under residence-based pension rules rather than as a government service pension.

Dividends (Article 10) and Interest (Article 11)

Under the in-force convention, treaty caps differ from many older summaries:

• Dividends: up to 10% in standard cases, 15% for certain property-income distributions, and 0% in qualifying substantial corporate holding cases.
• Interest: up to 10% in standard cases, 5% when beneficially owned by banks, and 0% for specific government/central-bank and related categories.

Domestic law can reduce effective withholding below treaty maxima in some situations. Use treaty rates as ceilings, not automatic outcomes.

Employment Income and Cross-Border Work

Employment income is generally taxed where duties are physically performed, with short-term assignment exceptions where treaty conditions are met.

For remote workers in Portugal paid by UK employers, treaty analysis must be combined with payroll/social-security and permanent-establishment checks.

Capital Gains

• Immovable property: taxable where the property is located.
• Shares and other movable assets: generally follow residence-based rules, subject to treaty exceptions.

Where both countries tax, relief mechanics and evidence quality decide whether double taxation is actually neutralised.

ISAs, SIPPs, and UK Wrappers

UK domestic wrapper treatment does not automatically transfer to Portugal.

• ISAs: UK tax-free treatment is not automatically recognised in Portugal.
• SIPPs and pension drawdown: treatment depends on pension classification and residence-year facts.

These are common areas where technically compliant UK advice and technically compliant Portuguese advice can still conflict if not coordinated.

Filing Coordination: HMRC and Finanças

1. Map income categories consistently across both systems.
2. Apply one treaty position memo across both returns.
3. Support relief claims with source-country evidence.
4. Align residency narrative in both filings.

Most expensive disputes start with two "reasonable" returns that tell different stories.

FAQ

Which treaty applies to my 2025 income?

For pre-effective periods, the old convention may still apply. For periods covered by the new effective dates (Portugal from 1 January 2026; UK income/CGT from 6 April 2026), the new convention governs.

Does the treaty mean I only pay tax in one country?

Not always. Some income types can be taxed in both countries. The treaty then provides relief mechanisms so the same income is not taxed twice without credit/exemption relief.

Is my UK state pension exempt in Portugal?

Generally no for Portuguese residents. Most UK state pension cases are residence-taxable in Portugal.

Are ISA gains automatically tax-free in Portugal?

No. UK wrapper status does not automatically bind Portuguese tax treatment.

Do I need both UK and Portugal advisors?

For cross-border profiles, coordinated dual-side handling is usually safer than siloed single-country work. If you want a structured starting point, begin with a Tax Diagnostic.

Last reviewed: February 8, 2026. Educational content only. Not personal tax or legal advice.