New UK–Portugal Double Tax Treaty: What Changes for UK Nationals Living in Portugal from 2026?

The tax relationship between Portugal and the United Kingdom changed significantly in 2026.

A new Double Taxation Convention between Portugal and the United Kingdom was signed on 15 September 2025 and entered into force on 29 December 2025. In Portugal, it applies from 1 January 2026 to the taxes covered by the Convention. In the United Kingdom, the effective dates vary depending on the tax: 1 January 2026 for withholding taxes, 1 April 2026 for Corporation Tax and 6 April 2026 for Income Tax and Capital Gains Tax.

The new treaty replaces the previous UK–Portugal Convention signed in 1968, which had governed cross-border taxation between the two countries for more than five decades.

For UK nationals who live in Portugal, the new treaty does not simply update terminology. It introduces material changes affecting dividends, property-rich companies, trusts and estates, self-employed professionals, employment income and anti-abuse rules.

This article explains the main changes and their practical implications for individuals who are tax resident in Portugal but retain pensions, investments, companies, property or other financial interests in the United Kingdom.

Does the new UK–Portugal tax treaty apply in 2026?

Yes.

The new Convention entered into force on 29 December 2025.

For Portuguese tax purposes, it applies from 1 January 2026 both to withholding taxes and to other taxes covered by the treaty.

The previous 1968 Convention therefore continues to be relevant primarily for income arising before the date on which the new Convention became effective for the relevant tax.

This distinction is particularly important when analysing transactions spanning 2025 and 2026.

At a glance: what changes for someone living in Portugal?

The most relevant changes can be summarised as follows:

Issue	Previous treaty	New treaty from 2026
UK private pensions	Generally taxable only in Portugal for a Portuguese treaty resident	Generally continues to be taxable only in Portugal
Ordinary UK dividends	Source-state treaty ceiling generally 15%	General treaty ceiling reduced to 10%
UK interest	Generally up to 10% source taxation	General 10% ceiling retained
Royalties	Generally up to 5%	5% retained
Ordinary share gains	Generally residence-state taxation	Generally continues to be residence-state taxation
Property-rich companies / partnerships / trusts	No equivalent modern 365-day property-rich rule	UK may tax where >50% of value derives from UK real estate
UK trusts and estates	General residual income provisions	Specific tracing and tax-credit provision introduced
Independent professionals	Separate “independent personal services” article	Generally incorporated into business profits / permanent establishment rules
Employment 183-day test	Based on fiscal-year formulation	Tested over any relevant 12-month period
Treaty anti-abuse	Limited older provisions	Explicit Principal Purpose Test
International dispute resolution	Traditional mutual agreement procedure	Modernised MAP plus arbitration for certain business cases

The practical effect depends on the type of income and the taxpayer’s individual circumstances.

1. UK private pensions received by residents of Portugal

For most private pensions, one of the most important points is what has not changed.

Under the old Convention, pensions and similar remuneration paid in consideration of past employment to a resident of one contracting state were generally taxable only in that state of residence.

Article 17 of the new Convention continues with the same broad principle:

pensions and other similar remuneration paid to a resident of Portugal are generally taxable only in Portugal, subject to the separate rules concerning government service pensions.

For a UK national who is genuinely treaty-resident in Portugal and receives a normal private UK pension, Portugal therefore normally retains the primary taxing right under the treaty.

What about SIPP withdrawals and pension lump sums?

This requires more care.

The treaty determines which country is entitled to tax a particular category of income. It does not automatically determine how Portugal classifies every payment arising from a UK pension arrangement.

For example, with a:

• SIPP;
• personal pension;
• workplace pension;
• defined contribution scheme; or
• lump-sum withdrawal,

it may still be necessary to determine the Portuguese tax characterisation of the payment, including whether all or part of the amount qualifies as pension income or whether another tax treatment could apply.

The UK label attached to a financial product is not necessarily decisive for Portuguese tax purposes.

2. UK government pensions remain subject to special rules

Government service pensions must be distinguished from ordinary private pensions.

Article 18 of the new treaty provides specific rules for salaries, pensions and similar remuneration paid by a contracting state, political or administrative subdivision or local authority in respect of services rendered to that state.

As a general principle, such remuneration may remain taxable in the paying state.

Nationality can, however, alter the result in certain circumstances.

This means that a UK government pension received by a Portuguese resident should not automatically be treated in the same way as a private UK pension.

A case-by-case analysis should consider:

• the institution paying the pension;
• the employment that generated the pension;
• whether the employment constituted government service;
• UK and Portuguese nationality; and
• the individual’s treaty residence.

The previous treaty also contained special government-service rules, although the drafting has now been modernised.

3. The treaty ceiling for ordinary dividends falls from 15% to 10%

Article 10 of the new Convention allows dividends paid by a company in one country to a beneficial owner resident in the other country to be taxed in both countries, but generally limits source-country taxation to 10% of the gross dividend.

A 15% ceiling applies to certain distributions from qualifying property investment vehicles.

This compares with the previous Convention, where the general source-state ceiling applicable to many dividend situations was 15%.

For qualifying corporate shareholders, the new Convention can go further. Dividends may be taxable exclusively in the shareholder company’s country of residence where, among other conditions, the recipient directly holds at least 10% of the payer company’s capital for an uninterrupted period of at least one year and the relevant corporate tax conditions are satisfied.

Does this mean a UK company must withhold 10% on every dividend paid to someone living in Portugal?

No.

A tax treaty limits the taxing rights available to a country; it does not itself create a domestic withholding tax where domestic legislation does not impose one.

The actual UK tax treatment must therefore be checked under UK domestic law as well as under the treaty.

For Portuguese purposes, the dividend must separately be analysed under the Portuguese Personal Income Tax Code and, where applicable, any special Portuguese tax regime available to the taxpayer.

4. Ordinary capital gains on UK shares generally remain taxable in Portugal

For many investors, the basic capital gains rule remains familiar.

Under Article 13(5) of the new Convention, gains from assets not falling within the specific exceptions in the preceding paragraphs are generally taxable only in the state in which the seller is treaty-resident.

Accordingly, where an individual is treaty-resident in Portugal and sells ordinary shares in a UK company that is not caught by one of the special rules, the treaty will normally allocate the taxing right to Portugal.

This does not mean that the gain is tax-free.

It means that the Portuguese domestic tax treatment must be determined under Portuguese law.

The analysis can be very different where the company owns substantial UK real estate.

5. A major new rule for UK property-rich companies

One of the most important changes in the new Convention concerns companies and other structures whose value derives mainly from real estate.

Article 13(2) allows the United Kingdom to tax a gain realised by a Portuguese resident on shares or comparable interests where, at any time during the 365 days preceding the disposal, more than 50% of their value derived directly or indirectly from immovable property situated in the UK.

The provision expressly covers comparable interests such as interests in:

• companies;
• partnerships; and
• trusts.

Example

Assume a person living in Portugal owns 100% of a UK company.

The company is worth £1 million, of which £750,000 relates directly or indirectly to UK property.

The shareholder sells the company.

Because more than 50% of its value derives from UK real estate, the United Kingdom can potentially retain a taxing right over the gain under the new treaty.

Portugal, as the taxpayer’s residence state, may also tax the gain under Portuguese domestic legislation. The double taxation mechanism must then be considered, including any available foreign tax credit.

This is a substantial change for individuals who hold UK property through companies or other investment structures.

6. UK property itself remains taxable in the United Kingdom

The general principle for direct ownership of real estate remains unchanged.

Rental income arising from UK real estate may be taxed in the United Kingdom because the property is located there.

A Portuguese tax resident is also generally subject to Portuguese tax on worldwide income.

The result can therefore be taxation in both countries, with double taxation normally addressed through the treaty and Portuguese foreign tax credit rules.

The same principle broadly applies to capital gains arising from the direct sale of UK real estate.

The treaty does not mean that a Portuguese tax resident can simply exclude UK property income from their Portuguese tax return.

7. New specific rules for UK trusts and estates

One of the most technically important innovations concerns trusts and estates.

Article 20(2) introduces a specific rule where income is paid to a resident of Portugal out of income received by UK-resident trustees or personal representatives administering an estate.

Under the provision, the amount paid to the Portuguese beneficiary is treated as arising from the same underlying sources and in the same proportions as the income received by the trustees or personal representatives.

In addition, tax paid by the trustees or personal representatives in respect of the income paid to the beneficiary is treated, for treaty purposes, as if it had been paid by the beneficiary.

This can be extremely important for Portuguese residents receiving distributions from:

• UK trusts;
• deceased estates;
• testamentary structures; or
• other fiduciary arrangements.

Example

Suppose UK trustees receive:

• £60,000 of dividends;
• £30,000 of interest; and
• £10,000 of rental income.

They subsequently make a distribution to a beneficiary who is resident in Portugal.

The new treaty can require the distribution to retain the underlying source composition proportionately rather than automatically treating the entire payment as one generic category of “other income”.

This can materially affect:

• Portuguese classification;
• source determination;
• foreign tax credit calculations;
• interaction with special Portuguese tax regimes; and
• the documentation required from the trustees.

Trust distributions should therefore be reviewed before funds are distributed whenever possible.

8. Freelancers and independent consultants move into the business profits framework

The 1968 Convention contained a separate article dealing with Independent Personal Services.

Under the old Article 14, professional income was generally taxable only in the individual’s state of residence unless the individual maintained a fixed base in the other country.

The new Convention no longer maintains that separate framework.

Instead, its definition of “business” expressly includes professional services and other activities of an independent character, bringing independent professionals principally within the business profits and permanent establishment framework.

For consultants, contractors and freelancers operating between Portugal and the UK, the analysis therefore increasingly focuses on questions such as:

• Where is the individual tax resident?
• Where is the activity physically performed?
• Is there a fixed place of business?
• Does a permanent establishment exist?
• Is a UK company being effectively managed from Portugal?
• Who concludes contracts?
• Where are the commercial decisions made?

This is particularly relevant for a UK consultant who relocates to Portugal but continues working through an existing UK limited company.

The individual’s Portuguese residence does not, by itself, answer the corporate tax questions surrounding the UK company.

9. The employment 183-day test becomes more precise

For employment income, the new treaty retains the familiar three-condition short-term employment exemption.

However, the 183-day condition is now tested by reference to presence not exceeding 183 days in any twelve-month period commencing or ending in the relevant fiscal year.

This is more precise than relying exclusively on a single fiscal-year count.

For internationally mobile employees, directors and contractors, travel days should therefore be monitored carefully.

Simply remaining below 183 days during one calendar or UK tax year is not always sufficient to determine the treaty result.

10. Interest remains broadly subject to a 10% treaty ceiling

Under the previous Convention, interest arising in one country and paid to a resident of the other could generally be taxed at source, subject to a maximum rate of 10%.

The new Convention broadly retains the 10% general ceiling.

A reduced 5% ceiling applies to certain interest beneficially owned by qualifying banks, while specific public-sector payments may benefit from exclusive residence-state taxation.

For an ordinary individual investor resident in Portugal, the fundamental treaty framework for UK interest therefore changes relatively little.

Portuguese domestic taxation must still be considered separately.

11. Royalties remain subject to a 5% source-state ceiling

The general treaty treatment of royalties is also largely preserved.

The new Convention allows the source state to tax royalties but generally restricts that taxation to 5% of the gross amount, provided the recipient is the beneficial owner.

This can be relevant to individuals living in Portugal who receive UK-source income connected with:

• copyrights;
• patents;
• trademarks;
• designs;
• formulas;
• processes; or
• qualifying know-how.

The Portuguese classification and taxation of the royalty must still be analysed independently.

12. The new treaty introduces a modern Principal Purpose Test

The 2025 Convention includes an explicit anti-abuse provision in Article 27.

A treaty benefit can be denied where it is reasonable to conclude, considering all relevant facts and circumstances, that obtaining the treaty benefit was one of the principal purposes of an arrangement or transaction, unless granting that benefit would be consistent with the object and purpose of the relevant treaty provision.

This is commonly referred to as the Principal Purpose Test, or PPT.

It can be particularly relevant where taxpayers undertake transactions such as:

• interposing a company shortly before receiving income;
• transferring assets before a dividend or disposal;
• creating holding-company structures primarily to obtain a treaty rate;
• treaty shopping through an intermediate jurisdiction; or
• reorganising ownership shortly before a taxable event.

Cross-border tax planning between Portugal and the UK must therefore be commercially supportable and not merely designed to access a treaty advantage.

13. Double taxation is generally relieved through a tax credit

Where the treaty permits the United Kingdom to tax income or gains received by a Portuguese resident, Portugal generally provides relief through a foreign tax credit, subject to the limits established under Portuguese law and Article 21 of the Convention.

The credit is not necessarily equal to every pound of tax paid abroad.

It is generally limited to the Portuguese tax attributable to the relevant foreign income or gain.

Consequently, a taxpayer should not assume that:

“If I pay tax in the UK, I will never pay any additional tax in Portugal.”

The actual result depends on:

• the Portuguese tax classification;
• the Portuguese tax rate;
• the UK tax correctly due under the treaty;
• the amount of foreign tax eligible for credit;
• the taxpayer’s Portuguese tax regime; and
• whether both countries are taxing the same income.

How does the new treaty interact with Portugal’s NHR or IFICI regimes?

This is an area requiring particular care.

A Double Taxation Convention determines how taxing rights are allocated between Portugal and the UK.

A Portuguese preferential tax regime determines how Portugal then exercises its taxing rights.

These are separate analytical steps.

For example, there can be an important distinction between:

an ordinary UK share gain, where the treaty may allocate exclusive taxation to Portugal,

and

a gain from a UK property-rich company, where the new Article 13(2) expressly allows the UK to tax.

That treaty distinction can be relevant when assessing the Portuguese treatment of foreign-source income under regimes such as the legacy Non-Habitual Resident regime or IFICI.

However, treaty wording alone does not establish an exemption under NHR or IFICI. The relevant Portuguese statutory conditions, income category, source rules and applicable version of the special regime must be analysed separately.

Practical examples for UK nationals living in Portugal

UK private pension

A British national moves permanently to Portugal and receives a normal private workplace pension from the UK.

Treaty starting point: normally taxable only in Portugal, assuming Portuguese treaty residence and no government-service exception.

UK investment portfolio

A Portuguese tax resident sells quoted shares in an ordinary UK trading company.

Treaty starting point: in the absence of a special exception, the capital gain will generally be taxable only in Portugal.

UK property company

A Portuguese resident sells shares in a UK company whose value derives 80% from UK residential property.

Treaty starting point: the UK can potentially tax the gain under the new property-rich entity rule.

UK rental property

A Portuguese resident owns and rents a house in London.

Treaty starting point: the UK can tax the rental income. Portugal may also tax the income as the taxpayer’s country of residence, with double taxation relief considered separately.

UK trust distribution

A Portuguese resident receives a distribution from UK trustees.

Treaty starting point: the new Article 20(2) may trace the distribution back to the underlying categories of income received by the trustees, while potentially recognising corresponding UK tax paid by the trustees.

UK consultant operating from Portugal

A consultant moves to Portugal but continues providing services through a UK limited company.

Treaty starting point: the personal residence position is only one part of the analysis. Permanent establishment, company residence, place of effective management, employment remuneration and profit allocation may all require review.

Frequently asked questions

When did the new UK–Portugal Double Tax Treaty enter into force?

It entered into force on 29 December 2025. It generally applies in Portugal from 1 January 2026.

Does the new treaty replace the 1968 UK–Portugal tax treaty?

Yes. The 1968 Convention has ceased to apply as the new treaty takes effect for the relevant taxes, although it can remain relevant to income arising before the relevant transition date.

Are UK private pensions taxed in Portugal?

For a person who is treaty-resident in Portugal, ordinary private pensions and similar remuneration are generally taxable only in Portugal under Article 17, subject to the special government-service rules.

Is a UK SIPP tax-free in Portugal?

Not automatically.

The treaty can determine which country has taxing rights, but the Portuguese taxation of a SIPP withdrawal depends on how the payment is characterised under Portuguese tax law.

Where are gains from UK shares taxed if I live in Portugal?

For ordinary shares not covered by a special treaty exception, gains are generally taxable only in Portugal if the seller is treaty-resident in Portugal.

A different rule can apply where the company derives more than 50% of its value from UK real estate.

Does the UK tax dividends paid to someone living in Portugal?

The treaty allows source taxation of ordinary dividends subject generally to a 10% maximum treaty rate, but the actual amount of UK tax depends on UK domestic legislation. A treaty ceiling does not itself create a withholding tax.

Can the UK tax the sale of a UK property company by someone living in Portugal?

Potentially yes.

Under Article 13(2), the UK can tax a gain where more than 50% of the value of the relevant shares or comparable interests derived directly or indirectly from UK real estate at any point during the preceding 365 days.

How are UK trust distributions taxed in Portugal?

There is no single answer for every trust.

The new treaty contains a specific rule for income paid to Portuguese residents by UK trustees or estate representatives. The payment can inherit the source composition of the trustees’ underlying income, and certain UK tax paid by the trustees can be treated as tax paid by the beneficiary. Portuguese domestic classification must then be analysed separately.

Does paying tax in the UK mean no tax is due in Portugal?

Not necessarily.

Portugal generally taxes its residents on worldwide income. Where the UK has a valid taxing right under the treaty, Portugal will normally consider foreign tax credit relief, subject to Portuguese limitations.

What should UK nationals living in Portugal review in 2026?

Anyone who is tax resident in Portugal and retains significant UK financial interests should consider reviewing the new treaty before undertaking major transactions.

Particular attention should be given to:

• UK private and government pensions;
• SIPP and pension lump-sum withdrawals;
• sales of UK shares;
• UK property companies;
• direct UK property;
• trust and estate distributions;
• UK limited companies managed from Portugal;
• consulting and freelance activities;
• cross-border dividends;
• corporate restructurings; and
• transactions intended to take advantage of treaty benefits.

Transactions involving companies, trusts or pensions are particularly sensitive because the Portuguese tax classification may not follow the terminology used in UK law.

Final considerations

The 2025 UK–Portugal Double Taxation Convention represents the most significant overhaul of the tax treaty relationship between the two countries in more than 50 years.

For many British residents of Portugal, the treatment of ordinary private pensions and portfolio investments remains broadly familiar.

However, there are important changes.

The new treaty introduces a property-rich company rule, specific provisions for UK trusts and estates, a modernised framework for independent professionals, more precise employment rules, stronger anti-abuse provisions, and revised treaty rates for certain cross-border payments.

For individuals with straightforward income, these changes may have limited practical impact.

For anyone holding UK companies, trusts, substantial property investments, pensions or cross-border business structures, the new rules should be incorporated into tax planning from 2026 onwards.

How GoalSeek can help

GoalSeek advises international individuals, entrepreneurs and freelancers on Portuguese taxation and cross-border tax matters.

We can assist with:

• Portugal–UK treaty analysis;
• Portuguese tax residence;
• UK pension and SIPP taxation in Portugal;
• foreign investment income;
• capital gains;
• UK property and property-holding companies;
• trusts and inherited assets;
• freelancer and company structures;
• NHR and IFICI analysis; and
• Portuguese IRS reporting of foreign income.

Because treaty entitlement and Portuguese domestic taxation must be analysed together, significant distributions, disposals or restructurings should ideally be reviewed before the transaction takes place.

This article is intended for general information only and does not constitute individual tax advice or a binding interpretation of Portuguese tax law. Tax treatment depends on the taxpayer’s circumstances, the legal nature of the relevant assets and payments, and the legislation applicable at the time of the transaction.

Official sources: HM Revenue & Customs confirms that the 2025 UK–Portugal Convention entered into force on 29 December 2025 and replaced the 1968 Convention for the relevant periods.