Portugal’s sun-soaked coastlines and relaxed lifestyle have drawn tens of thousands of British citizens in recent years. Yet, for all its appeal, living in Portugal brings one important question for expats: What happens to your UK taxes once you move?
For many, the answer is complex. Whether you work remotely, own property, or receive pensions, understanding the relationship between the UK and Portuguese tax systems is essential to staying compliant, avoiding double taxation, and maximising your financial well-being.
1. Understanding UK Tax Residency
In the UK, tax obligations depend on residency, not nationality.
Under the Statutory Residence Test (SRT), you are considered a UK tax resident if you:
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Spend 183 days or more in the UK in a tax year;
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Have a home or close family ties there; or
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Work full-time in the UK.
If you remain a UK tax resident, HMRC taxes your worldwide income.
If you become non-resident, only your UK-sourced income — such as property rent, pensions, or dividends — remains taxable in the UK.
However, even after becoming non-resident, expats must often continue filing a UK Self Assessment return for certain income streams.
2. Portugal’s Tax Residency Rules
In Portugal, the tax authority Autoridade Tributária e Aduaneira (AT) determines residency based on the 183-day rule.
You are considered Portuguese tax resident if:
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You spend 183 days or more in Portugal within a 12-month period; or
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You maintain a home or habitual residence in Portugal at any time during that period.
As a resident, you are taxed on worldwide income.
Non-residents, on the other hand, are taxed only on Portuguese-source income (such as local employment, business income, or property rental).
3. The UK–Portugal Double Taxation Agreement
To prevent individuals from being taxed twice on the same income, the UK and Portugal have a comprehensive Double Taxation Agreement (DTA).
The DTA allocates taxing rights as follows:
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UK government pensions (e.g., civil service or armed forces) are taxed only in the UK.
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Private or occupational pensions are generally taxed only in Portugal, if you are resident there.
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Rental income from UK property remains taxable in the UK, though you can declare it in Portugal and claim credit for tax paid to HMRC.
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Dividends, interest, and royalties may be taxed in both countries, but the DTA allows for credit or exemption mechanisms.
The treaty ensures that British expats in Portugal are not unfairly taxed twice, provided they declare income properly in both jurisdictions and maintain accurate residency records.
4. The Non-Habitual Resident (NHR) Regime
One of Portugal’s most attractive incentives for foreign residents has been the Non-Habitual Resident (NHR) tax regime.
Under NHR, individuals who become Portuguese tax residents after living abroad for at least five years may benefit from preferential tax treatment for 10 years, including:
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A flat 20% tax rate on Portuguese employment or self-employment income in certain professions;
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Tax exemptions or reductions on foreign income (such as pensions, dividends, or interest) if they are taxable in another country under a DTA.
However, changes introduced in 2024 are phasing out the original NHR regime, with a new framework focusing on specific skilled professionals and returning residents. Those who already hold NHR status can generally retain their benefits for the remainder of their 10-year period.
Expats moving now should seek tailored advice to determine eligibility under the revised system.
5. UK Income That Remains Taxable While Living in Portugal
Even after moving to Portugal, several types of UK income typically remain taxable in the UK, including:
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Rental income from UK property;
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UK government service pensions;
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Profits from UK businesses or partnerships;
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Certain investment income (depending on source).
Such income must be reported to HMRC via Self Assessment and again in Portugal for credit or exemption under the DTA. Maintaining detailed financial records — particularly of property income and tax withheld — is vital to ensure you don’t overpay.
6. Filing Taxes in Both Countries
Expats often find themselves filing in both jurisdictions:
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In the UK, Self Assessment tax returns are due by 31 January each year (for the previous tax year ending 5 April).
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In Portugal, tax returns (IRS Declaração de Rendimentos) are generally due between April and June for the previous calendar year.
Because the two systems use different tax years, aligning income and exchange rates correctly is crucial. Digital accounting tools or professional advisers can help prevent errors.
7. Common Mistakes UK Expats Make
Even financially savvy expats can make costly errors, including:
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Failing to declare UK property income in both countries;
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Misunderstanding how pensions are taxed under the DTA;
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Assuming that NHR status automatically exempts all foreign income;
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Forgetting to claim foreign tax credits;
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Using incorrect exchange rates when converting income into euros.
These oversights can result in penalties, audits, or double taxation — all of which are preventable with proper planning.
8. Digital Tools and Professional Support
Both HMRC and Portugal’s AT provide digital filing systems, making it easier to manage taxes from abroad.
However, cross-border tax affairs — especially involving the DTA and NHR rules — remain complex.
This is where professional guidance becomes invaluable.
Specialist advisory firms such as My Tax Accountant assist British expats in understanding dual obligations, filing UK Self Assessment returns from overseas, and optimising reliefs under international agreements. Expert help ensures full compliance without overpaying, especially when tax laws shift between countries.
9. Financial Planning for Life in Portugal
Tax compliance is only one part of the picture. Successful expat living requires proactive financial planning:
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Pensions: The UK State Pension can be claimed in Portugal and is uprated annually under the current social security agreement.
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Investments: Be aware of how Portugal taxes dividends and capital gains; local tax rates can differ from UK standards.
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Savings: UK ISAs are not recognised in Portugal, meaning earnings from them are taxable locally.
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Healthcare: British citizens living in Portugal long-term should register for healthcare either through local systems or private insurance.
Balancing two financial systems requires ongoing awareness of tax changes and currency fluctuations between sterling and euros.
10. Final Thoughts
For Britons settling in Portugal, the warmth, culture, and lifestyle are clear rewards — but managing taxes between two countries demands attention and planning.
Understanding your residency status, knowing which income remains taxable in the UK, and correctly applying the Double Taxation Agreement can help you remain compliant and financially efficient.
With the right preparation — and, when necessary, professional guidance — living in Portugal can be as tax-smart as it is sun-filled. In the end, peace of mind is worth every bit of effort spent getting your financial house in order.
