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Want Tax Free Pensions? Come To Portugal!

Want Tax Free Pensions? Come To Portugal!

One of the most common topics of conversation over the course of this seasons Overseas Property Show tour of the UK has been the Non Habitual Residency Scheme that has been introduced to Portugal offering the opportunity of 10 years tax free pensions to British expats.

In order to make sure the information given is correct, I contacted Duncan MacGregor who is a statutory auditor for Lisbon based accountancy firm and tax specialists DMA Accounting4portugal and this is what he told me :

“There is double taxation agreement between Portugal and the UK.


Under this convention, pensions and similar remuneration paid to a resident of a Contracting State as a result of previous employment can only be taxed in that State, i.e. they are taxed in the state of residence, providing that such pensions do not result from civil service (or from public funds). Such pensions can only be taxed in the State where the services were rendered, except if the person concerned is a national of one of the Contracting Countries – in such cases, the general rule applies – country of residence.


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Under Portuguese tax legislation, all expats living in Portugal and resident here for tax purposes are taxed on their worldwide income. Hence British expats moving to Portugal and having a permanent home here, will be taxed here on their worldwide income.


A new regime was created in 2009 – the Non Habitual Resident regime which applies to all taxpayers who become tax residents in Portugal with effect from 23-9-2009 – the only condition for adhering to this regime is that an applicant cannot have been tax resident here in the preceding 5 years. The application process is relatively simple, although a bit lengthy 3-7 months. Once accepted, pensions from overseas are no longer taxable in Portugal provided that they are not paid by entities with residence, head office or permanent establishment here.


Accordingly, under the double taxation agreement and the new NHR regime, British expats who become tax resident here and apply for the NHR status will not be taxed on their private-source British pensions.

In addition British expats resident in Portugal can apply for the lower withholding tax rates on interest and dividend income earned in the UK.”


So there it is from the experts!

To find out more about relocating to, or buying a second home in Portugal come and join us at the Overseas Property Show, details of remaining dates and venues can be found on www.theoverseaspropertyshow.com or speak to one of our team on 0800 133 7644.

For more information on the Portuguese Tax system visit www.accounting4portugal.com


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