FINANCE
YOUR MONEY
FINANCE
YOUR MONEY
Ricardo Chaves of All Finance Matters is here to help people understand what is allowable – and not – when it comes to financial matters in Portugal. AFM experts can advise you on how to deal with both business and personal tax matters to ensure you are in the best possible position. Resad Ricardo’s monthly column in AlgarvePLUS
Q What is the situation with my UK State Pension when my NHR finishes in 2026?
A Once your Non‑Habitual Resident (NHR) status expires, your UK State Pension becomes fully taxable in Portugal as part of your worldwide income. Ordinary UK pensions are not taxed in the UK under the double tax treaty, so Portugal has exclusive taxing rights. The exception is UK government service pensions (eg civil service, local authority), which remain taxable in the UK and are exempt in Portugal.
In Portugal, pension income is subject to the progressive IRS rates, with a tax‑free allowance of around €12,880 per year (from 2026). Above this threshold, rates range from 12.5% up to 48%, depending on your income level.
Tax thresholds are not always straightforward. Couples can choose between: — Individual filing: each spouse taxed separately. -Joint filing: household income is combined and then divided by two to determine the bracket.
– Joint filing often reduces the effective tax rate when one spouse earns significantly more than the other. It is always advisable to run a tax simulation in both scenarios to see which option is more beneficial.
Beyond pension taxation, Portuguese residents can reduce their tax bill through deductions linked to invoices issued with their NIF (tax number). These include:
– General family expenses: 35% of eligible spending, capped at €250 per taxpayer.
– Health expenses: 15% of costs (doctors, pharmacies), capped at €1,000.
– Education expenses: 30% of eligible costs, capped at €800.
– Housing expenses: deductions for rent, subject to limits.
– VAT credits: 15% of VAT paid in restaurants, hairdressers, veterinary services, and car repairs, capped at €250 per household.
By consistently requesting invoices with your NIF, you automatically accumulate deductions that lower your final tax liability. These are tracked in the e‑Fatura portal, so you normally don’t need to keep paper copies.
In summary: After NHR ends, your UK State Pension is taxed progressively in Portugal, but careful planning, choosing the right filing method and maximizing deductions can significantly reduce your effective tax burden.
