How your UK State Pension is taxed in Castelo Branco, Portugal

A rural, mountainous inland district bordering Spain, Castelo Branco is one of Portugal’s least populated and least expensive areas to live.

Where it’s taxed

Under the UK–Portugal Double Taxation Convention – a new treaty signed in September 2025 that entered into force in December 2025 and took effect for UK Income Tax from 6 April 2026, replacing the 1968 treaty it succeeds – the UK State Pension is taxable only in Portugal once you are Portuguese tax resident, and the UK should not be taxing it directly. Portugal taxes residents on their worldwide income, so if you live in Castelo Branco the pension counts toward your Portuguese IRS return (Categoria H, pension income), alongside any other income you have.

If you’ve read that Portugal’s Non-Habitual Resident (NHR) regime can shelter foreign pension income from tax, that applied to earlier arrivals but is now out of date. NHR closed to most new applicants from 2024, with only a narrow transitional window for people who had already taken steps such as signing a lease or work contract by the end of 2023 and became Portuguese tax resident by the end of 2024. Its replacement for new residents, the Incentivo Fiscal à Investigação Científica e Inovação (IFICI, sometimes called “NHR 2.0”), explicitly excludes pension income from its scope. In practice, a UK expat retiring to Castelo Branco today is taxed on their State Pension under Portugal’s ordinary IRS rules from day one, with no special pension exemption available. If you already hold NHR status granted before it closed, your existing grandfathered terms should continue automatically for the remainder of your original 10-year period – confirm the specifics with your adviser.

How Portugal taxes it

Portugal treats the UK State Pension as pension income alongside any other pensions you receive. The final tax you pay depends on:

• your total annual pension amount
• any other income, since Portugal taxes pension and employment income on the same combined scale
• your district of residence, which for you is Castelo Branco
• the specific deduction (dedução específica) you’re entitled to against pension income

Portugal applies a specific deduction of €4,587.09 (2026, 8.54× the annual Social Support Index) against pension income before the IRS scale is applied – the same amount available against employment income. Mainland Portugal’s 2026 IRS scale is progressive across nine bands, running from 12.5% on the lowest band of taxable income up to 48% on income above €86,634. An additional solidarity surcharge of 2.5% applies to income between €80,000 and €250,000, and 5% above €250,000 – thresholds most UK State Pensions will never come close to reaching on their own.

Ways to reduce or avoid unnecessary tax

Since the State Pension is frequently a UK expat’s only income, the main steps are:

• Check the UK isn’t taxing the pension. The State Pension is normally paid gross with no UK tax withheld, so this usually only becomes an issue if other UK income, such as a workplace pension, is being taxed to collect tax on the State Pension as well. If so, submitting HMRC’s Form DT-Individual along with a Portuguese tax residency certificate confirms your treaty position and stops the UK from taxing it.
• Claim the full €4,587.09 specific deduction against your pension income when your IRS return is prepared.
• Check which of the nine mainland IRS bands your total income falls into each year, since the euro thresholds are adjusted annually and moving up or down a band changes your marginal rate.
• Report the pension correctly. Convert each payment using the exchange rate on the date it’s received for the most accurate calculation – Portuguese rules also permit an annual average rate, but converting payment-by-payment better reflects what you actually received in euros at the time.