How Portugal taxes a retirement plan

We model these and we know we do not get them exactly right. Where the size could be measured, it is stated.

• Portugal shields a minimum living income from tax. Passing about 16,544 of total income does not shrink that shield: it removes the whole of it. Every kind of income counts towards that limit, investments and rent included, and we test only your pension against it. So we hand you relief the law would usually take away and show too little tax, by about 193 a year in our smallest worked case and up to about 786.

  Your real tax is higher/up to €786 a year/anyone with a modest Portuguese pension and any investment or rental income at all

• That same relief also shrinks as income rises, and the law measures it against every kind of income you have. We measure it against your pension alone. If you also have investments or rent, we give you more relief than you would really get and show less tax than you would really pay. Where a pension is the only income, the two are identical.

  Your real tax is higher/anyone with Portuguese income beyond their pension, such as investments or rent

• Madeira charges 30 percent less than the mainland on interest and dividends, but the full mainland rate on the profit from selling an investment. We can only use one rate for all three, so we use the rate that applies to selling, because that is what a retirement plan does. As things stand that costs a Madeiran nothing, because we charge no tax on interest or dividends while you hold them at all, a separate simplification described with deposits. If we ever start charging them, the Madeiran rate on them would be too high, by 8.4 percent of the interest.

  Could go either way/Madeiran households holding cash or any distributing investment inside a taxable account

• We charge 28 percent on the whole rent. A residential letting is charged at 25 percent, the rate drops further the longer the lease runs, by 10 points from five years, 15 from ten and 20 from twenty, and the charge falls on what is left after deductible property costs rather than on the whole rent. So the rental tax we show is too high, and on a long residential lease it is much too high.

  Your real tax is lower/anyone letting out Portuguese residential property, especially on a long lease

• Portugal taxes less of an investment gain the longer you have held it: 28 percent up to two years, 25.2 to five, 22.4 to eight and 19.6 after that. We apply the eight year rate to every sale, so anything sold in the first eight years is undertaxed here. Because the oldest holdings are sold first, those early years carry the smallest gains, which limits how far wrong this goes.

  Your real tax is higher/anyone selling investments during the first eight years of the plan

• In Portugal a year's net loss on selling investments can be carried forward for five years, but only if you choose to add your investment income to your other income on that year's return. We assume you always make that choice, because in a loss year it costs nothing. If you would not make it, we show too little tax in the years the loss is used.

  Your real tax is higher/Portuguese residents who sell investments at a loss

• For a couple we double the minimum living income relief and the income points at which it fades out. The law is explicit that those fade out points are counted per person, and less clear that the relief itself doubles, so we took the reading that doubles both. If only one of them really doubles, a couple's relief here is too generous and their tax too low.

  Your real tax is higher/couples in Portugal assessed together whose combined income is low enough for the relief to survive

• Portuguese couples are assessed separately unless they choose to be assessed together, and being assessed together splits the income between them, which is worth a substantial amount when one partner has much more than the other. We assume you always make that choice. If you file separately on unequal incomes, you pay more tax than we show.

  Your real tax is higher/couples with unequal incomes who file separately, which is Portugal's default

• When an annuity you bought, or a workplace pension you paid into from taxed pay, gives you back your own money, Portugal taxes only the part that is not that money. If the insurer or fund states that split, the stated split applies. We cannot take that figure from you, so we always use the fallback the law sets when no split is stated: 15 percent of each payment is taxed. If your provider states a larger taxable part we show too little tax, and a smaller one too much.

  Could go either way/anyone with a purchased annuity or a workplace pension built from taxed contributions whose provider states the capital part

• A PPR, Retirement Certificates and a pan-European personal pension (PEPP) are their own account. What you paid in comes back untaxed; the growth inside what you take out is taxed at 8 percent from 60, and at up to 21.5 percent before. What we simplify: we treat every payment in as old enough to qualify, we never take back the tax relief you got on the way in, and we treat Retirement Certificates as reachable before your state pension starts. A PPR paid as regular income should be entered with your pensions.

  Could go either way/anyone holding a PPR, Retirement Certificates or a PEPP

These exist in law and we leave them out, usually because applying them would need a question we do not ask.

• Once a year you may move investment income onto the ordinary scale instead of paying the flat 28 percent, and dividends from Portuguese and European companies are then only half counted, which brings them below 28 percent. We always use the flat rate. The choice is all or nothing within a category, so interest travels with the dividends and often loses more than they save. Where choosing pays, we show too much tax, by about 310 to 650 a year.

  Your real tax is lower/up to €646 a year/anyone with Portuguese or European dividends in a taxable account

• Interest on bank deposits and savings certificates is taxed at 28 percent every year it is paid, 19.6 percent in Madeira. We treat the cash part of your investments as a fund that reinvests its income, which is taxed only when you sell, so we charge nothing on that interest while you hold it. If your cash is on deposit we show too little tax, by 28 percent of the interest.

  Your real tax is higher/up to €140 a year/anyone keeping part of their savings on deposit or in savings certificates

• We now ask whether you live on the mainland, in Madeira or in the Azores, and charge each its own rates. One piece is still missing. Portugal adds an extra charge on very high incomes, starting at 80,000 of taxable income, and we always charge it at the mainland rate. If a region reduces that charge too, we show a little too much tax for the few people it reaches.

  Your real tax is lower/Azorean households above about 80,000 of taxable income, if the regional clause does reach the surcharge

• If your taxable income reaches about 86,634 and you sell something you have held for less than a year, that gain has to go on the ordinary scale, whose top rate is well above the flat 28 percent we charge. We do not model that, so at those incomes the tax we show is too low. It binds for almost no retiree.

  Your real tax is higher/anyone above about 86,634 of taxable income who sells within a year of buying

• Income and gains from a jurisdiction on Portugal's blacklist are taxed at 35 percent, and the discount for holding something a long time does not apply to them. We charge the ordinary rate, so if you hold anything based in one of those places, the tax we show is too low. Ireland, Luxembourg and the United States, home to most funds sold in Europe, are not on that list.

  Your real tax is higher/anyone holding investments based in a blacklisted jurisdiction

• Portugal has insurance based savings wrappers whose tax falls with time held: 28 percent of the growth up to five years, 22.4 from five to eight and 11.2 after eight, provided enough of the premiums went in early in the contract. We do not offer them as a choice and tax everything as an ordinary investment account, so for a wrapper held eight years or more the tax we show is too high.

  Your real tax is lower/anyone holding a Portuguese life insurance or capitalisation savings wrapper

• Portugal's non-habitual resident scheme (NHR) charges a flat 10 percent on a pension from abroad for ten years, and nothing at all for the earliest arrivals. It closed to new entrants in 2024 and those already inside keep it up to the 2033 income year. We never ask, so if you are one of them the tax we show is far too high, two or three times what you would really pay. Its replacement does not cover pensions.

  Your real tax is lower/anyone registered under Portugal's former resident scheme before 2024 who draws a pension from abroad

• Portugal caps the total of your tax credits on a sliding scale, from 2,500 at low incomes down to 1,000 at 80,000. We do not apply the cap, so in principle we could credit you more than you could claim and show too little tax. The only credit we give is the 250 for household expenses, which is nowhere near the cap. We hold the cap's formula with less confidence than the rest, because the source publishes it as a picture.

  Your real tax is higher/anyone whose Portuguese tax credits together would reach the overall cap

• Retired civil servants who stay in the public sector health scheme pay 3.5 percent of their pension to it, on each of the fourteen payments a year, with nothing taken below a floor of about 635 a month. We do not ask whether you worked in the public sector, so we show none of it and the total taken from your pension is too low. It would not cut your income tax either, at any pension we model.

  Your real tax is higher/retired public sector workers who stay in the civil service health scheme

• Funds based in Portugal pay a small stamp duty on their assets every quarter, roughly 0.05 percent a year. The fund pays it rather than you, funds based elsewhere are untouched by it, and we do not model it. We could not confirm the rate, so treat this as the least certain thing on the page.

  Your real tax is higher/anyone holding a fund based in Portugal rather than one based elsewhere in Europe

Separate tax systems, or rules that only bite outside a retirement plan.

• Half the gain on shares in an unlisted small company escapes tax, an effective 14 percent against the 19.6 we apply to a long held listed holding. We do not offer that kind of holding as a choice, so if you own one, the tax we show on selling it is too high. It sits outside the listed shares, bonds and funds a retirement portfolio is normally built from.

  Your real tax is lower/anyone holding shares in an unlisted micro or small company

• Selling a Portuguese property puts half the gain onto your ordinary income scale in the year of the sale, which can lift you from a 21 percent band into a 34.9 percent one. We do not tax property sales, so a year with one in it shows too little tax. Relief exists for your own home, and for anyone 65 or over who puts the proceeds into a product paying a regular sum for at least ten years.

  Your real tax is higher/anyone planning to sell a Portuguese property during retirement

• Portugal charges a yearly tax on property, from 0.3 to 0.45 percent of its rateable value depending on the municipality, and a further charge on property holdings above 600,000. We model neither, so neither appears in your figures. That 600,000 threshold has not moved since 2017, so over a long plan an ordinary home can grow into it.

  Your real tax is higher/anyone who owns Portuguese property, and more of them the longer the plan runs