Claiming your pension in Portugal
The practicalities of claiming your pension in Portugal are very important details to iron out if you plan to retire there. Portugal is hugely popular with British pensioners for many reasons. These include year-round good weather, a low cost of living and a friendly, welcoming atmosphere. There are also potential tax benefits to living in Portugal as a pensioner.
If you plan to claim your pension in Portugal, you need to consider the best way to transfer it into the country. There’s also plenty to think about when it comes to if, how and where you pay tax.
A tax-free pension in Portugal?
Portugal has attracted lots of global attention for its non-habitual resident taxation scheme. This allows many new residents with foreign-sourced income, including pensions, to take their income free of Portuguese income tax for up to ten years. This can make a move to Portugal a particularly enticing proposition!
There have been some rumours that this initiative could be curtailed. One rumour points to the potential of a 10% flat-rate tax on foreign pensions. It’s fair to say that this could still prove more attractive to prospective expats than taking their pension in their home country. At the time of writing, however, nothing about this has been confirmed. You are best advised to seek the advice of an independent financial advisor.
The practicalities of receiving your pension in Portugal
If you receive a UK state pension, this will usually be paid into your UK bank account. This means it’s essential to ensure this bank account remains active and accessible after your move. If you have money credited to the account regularly, your bank will usually not object to your changing your contact address to one in Portugal.
The best way to draw your money out in Portugal is to set up a Regular Payments Plan with Smart Currency Exchange.
If this is how you receive your pension, the best way to draw this money out in Portugal is to set up a Regular Payments Plan with Smart Currency Exchange. There is no fee for this service and all you will need to do is set up a standing order. This automatically sends your funds at a pre-agreed exchange rate, and at pre-agreed intervals (usually monthly for a UK pension). This gives you the chance to plan your budget with price certainty around exchange rates.
You should receive a pension claim form from the UK Pension Service in the months before you retire. If you move to Portugal before you receive this, you must make sure that they have your new address in Portugal. Otherwise, you could fail to receive important documentation. Just to be on the safe side, a mail redirection is a good idea too.
Taxes on pension income
As with all tax concerns, when it comes to tax on your pension, we would highly recommend speaking to a qualified financial advisor. They can assess the best options to ensure you don’t pay tax on the same funds twice. Furthermore, it’s definitely worthwhile discussing whether you qualify for the non-habitual residency scheme.
Fiscal residency in Portugal is determined by quite specific criteria. Broadly speaking, once you become properly resident in Portugal and cut ties with the UK, you will be taxed in Portugal on your worldwide income. One exception to this is if you are in receipt of a forces or public service pension – as these pensions are always liable for tax in the UK.
There are different tax criteria in Portugal, however. In many cases, you can find that a combination of schemes, tax deductions and allowances gives you more disposable income to fund your life in Portugal than you would have “back home.”