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What are today’s options for Britons living in Portugal with UK pensions and what do you need to think about as Brexit approaches? 

Pensions are often the key to long-term financial security, so it is crucial to take extreme care when deciding what to do with them. UK expatriates have the added complication of factoring in the tax rules of two countries – and the ticking Brexit clock. 

Leaving your pension in the UK

One option is to do nothing and access UK pensions from Portugal. If you have a defined contribution (‘money purchase’) pension, you could, for example, take cash in one lump sum or several withdrawals, receive a regular income until it runs out (drawdown) or purchase a lifetime income (annuity). 

Defined benefit (‘final salary’) pensions, on the other hand, are company pensions that provide a regular income for the whole of retirement. While you cannot usually take benefits as cash, payments will continue for your lifetime. If you have not started taking your defined benefit pension, you could transfer benefits to a defined contribution scheme for more flexible access – but take care, as transferring is usually less beneficial than receiving a guaranteed income for life.

Note that UK pension payments are usually paid in sterling, so you could find that conversion fees and variable exchange rates reduce the value of pension income when living in Portugal.

Transferring your pension abroad

Residents in Portugal can move UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS) tax-free. 

Doing this can unlock several advantages, such as consolidating several pensions under one roof, gaining flexibility to take your pension in the currency you need, and more freedom to pass benefits to chosen heirs. Transferred funds would also be protected from UK lifetime allowance charges, as well as future UK pension rules that may adversely affect you – an increasing possibility after Brexit. 

Beware, however, that the UK charges a 25% tax penalty if you transfer to a QROPS outside the EU/EEA. With no approved QROPS in Portugal, you would need to select an eligible scheme in another EEA country to avoid losing a quarter of transferred funds to UK taxation. There are expectations that the UK could widen this taxation net to include EU-based QROPS post-Brexit, so time for tax-free transfers could be limited.

See more about potential tax penalties on UK pensions

Pension transfers can take several months to process, so if you decide transferring is right for you, act urgently to lock in current benefits and avoid unnecessary taxation. The benefits of a QROPS vary greatly between providers and jurisdictions, however, so take regulated advice to navigate the complex options and determine the most suitable solution for you.

Tax considerations 

While 25% of cash withdrawals can be taken tax-free in the UK, this only applies for UK residents. Once resident here, you would attract Portuguese income tax ranging from 14.5% to 48% on all non-government service UK pensions and QROPS income. Non-habitual residents (NHR), however, attract a flat rate of just 10% on foreign pensions within their first 10 years in Portugal… or 0% if you qualified for NHR before April 2020!

See more about non-habitual residency

Depending on your situation, you may find it beneficial to reinvest UK pension funds into an alternative tax-efficient structure that is suitable for Portugal, so explore your options.

Making your pensions last

Having the freedom to withdraw or transfer your pension doesn’t mean you should; you may be better off taking no action at this time. If you do choose to take some or all of your benefits as cash, make sure you have a reliable plan to fund your long-term future that matches your personal circumstances and goals. 

Beware that pension scams have never been more widespread and sophisticated – generally, if an investment sounds too good to be true, it probably is. Make sure any company you deal with is registered and regulated by the UK Financial Conduct Authority (FCA). Remember: unprotected investments risk losing your retirement savings, with no compensation if things go wrong. 

While there is no one-size-fits all answer for what to do with your pensions, you can benefit from reviewing your arrangements as soon as possible – before Brexit potentially changes the landscape – to help secure a prosperous retirement in Portugal. For the best results and to avoid an unexpected tax bill, take specialist, cross-border advice.

Contact us to discuss your pension options


Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.