Can I transfer my UK pension to Portugal?

A lower cost of living and access to high-quality healthcare are among the many reasons to consider retiring to Portugal.

However, it’s vital to understand the benefits and risks of transferring your pension. We take a good look at the transfer process, the pros and the cons. 

Transferring to other countries: Canada | New Zealand | Malta | Spain | India | Australia

What is a QROPS?  

A Qualified Recognised Overseas Pension Scheme (QROPS) is an overseas pension scheme approved by HMRC.

It’s essential you select a QROPS from HMRC’s current list of approved schemes, or you could face tax charges of up to 55% on your transfer. 

QROPS is becoming increasingly popular for pension funds over £150,000 due to its flexibility and potential tax advantages.

However, for smaller sums, other options, such as an international self-invested personal pension (SIPP), may offer more cost-effective solutions.

To be eligible, you must have a UK pension and either plan to move abroad or already live outside the UK. 

Most UK pension types can be transferred to a QROPS, except for the state pension, which is non-transferable.

It’s worth noting Portugal has no local providers on HMRC’s list of recognised overseas pension schemes (ROPS), but you can transfer to a Malta QROPS and get your retirement benefits in Portugal. 

Starting from 6 April 2024, any amount transferred to a QROPS will be tested against the overseas transfer allowance, which is set at £1,073,100 (or a higher protected amount if applicable).

If the transfer exceeds this limit, a 25% overseas transfer charge may apply to the amount over the allowance.

What are the rules for transferring your pension to Portugal? 

To move your UK pension to an approved Maltese QROPS, there are certain rules that must be met. 

Here are the main rules: 

• Your scheme must conform to the definition in the HMRC’s Pension Tax Manual. 
• Your scheme must be an overseas pension created outside the UK and meet the regulations test by being taxed as an occupational scheme in another country.
• Your scheme must be a ROPS. 
• It must pass a benefits tax relief test.
• Tax treatment applies to residents and non-residents. 
• Benefits are payable from the age of 55, except in the case of illness. 

What are the benefits of transferring your pension to Portugal?

It’s wise to have your pension in the same country or financial jurisdiction you’re retiring to, so you can receive income and spend in the same currency and avoid currency conversion costs. 

A key benefit is you will be exempt from any changes to UK legislation. Portugal also has the non-habitual resident (NHR) scheme, which offers tax relief on a QROPS or international SIPP. 

The previous government decided to end the scheme last year, but it was extended until the end of 2024.

The scheme is specifically designed for expats who become Portuguese tax residents, as it provides tax reductions for up to 10 years. 

As a citizen of the European Economic Area (EEA) or European Union, you need a residential address with at least a 12-month contract if you’re renting and have not paid tax in Portugal for five years. 

You may still be able to apply to the scheme, but it’s worth checking beforehand. Once you’ve passed proof of residency checks, you can apply for NHR status and get the benefits if you meet the criteria throughout the 10-year term. 

Here are the key benefits: 

• Under the NHR scheme, income from your pension is taxed at a flat rate of 10% for 10 years, provided you maintain your NHR status. 
• Any additional income from Portugal will be taxed at a capped rate of 20%. 

Reinvesting your UK pension funds into alternative tax-efficient options may be a good idea. 

Although there are advantages to transferring your UK pension into a Maltese QROPS and drawing your income in Portugal, there are some risks. 

It's wise to seek financial advice so you can choose the best option for your retirement. 

What are the drawbacks of transferring your UK pension to Portugal?

There are some disadvantages if you plan to take your pension out of the UK. 

• You relinquish guaranteed retirement and death benefits with a defined benefit (DB) pension.
• You will lose the protection given by the UK’s Pension Protection Fund to DB schemes.
• You take on the running costs paid by your existing DB scheme.
• You might pay higher charges than those levied by your defined contribution (DC) scheme.
• While you can access more investments via a QROPS, you are exposed to greater risk. 

The lump sum and death benefit allowance (LSDBA) might also be relevant.

If you pass away, the LSDBA permits tax-free lump sum payments from your pension up to certain limits. However, this benefit could be impacted if your QROPS is deregistered or the pension scheme fails to meet compliance requirements.

If you’re feeling overwhelmed about transferring your UK pension, an expert financial adviser may be able to offer guidance.

Can I get my state pension if I retire in Portugal?

If you retire to Portugal, you'll receive your UK state pension if you have enough national insurance contributions and are of retirement age.

As Portugal is in the EEA, your state pension will rise in line with UK increases. 

How do you transfer your pension to Portugal?

There are several steps you need to follow to transfer your UK pension to Portugal using a Maltese QROPS.

Check if you’re eligible

Ensure that your pension meets the criteria for a QROPS and that your chosen Maltese QROPS is a registered scheme that meets HMRC’s qualifying criteria. 

Choose your QROPS provider 

You should do extensive research to find a reputable QROPS provider that’s right for you. You should consider many aspects including any fees and investment options when making your choice. 

Tell your UK pension provider 

You must let your UK pension provider know that you are moving to Portugal and plan to transfer your pension to a QROPS in Malta. They will send you everything you need to complete. 

Complete and submit the transfer forms 

Next, you must complete the transfer forms sent by your UK pension and QROPS provider in Malta. Everything must be accurate and include any supporting information that is needed. 

Then, you should submit the forms to both providers. Your UK provider will transfer your pension to the QROPS in Malta, although this will be subject to HMRC approval.   

What other financial issues should you consider when moving to Portugal?

It’s wise to consider more than transferring your pension before starting your new life in Portugal. 

Here are some key financial considerations: 

• Your new home: It’s worth figuring out how you’re going to afford your new property in Portugal, whether it’s a mortgage, your savings or the proceeds from the sale of your current home. If you opt for a mortgage, a broker can help you work out exactly how much you can afford to borrow and for how long. 
• Address your tax affairs: HMRC must be told about your change in circumstances. A tax adviser can help you notify the taxman, organise your tax affairs and advise you on your pension, so you have peace of mind.  
• Inheritance: Once you own a property in Portugal, you should consider drawing up a will.
• Make sure you’re insured: Make it a priority to find a good insurance provider for your home and vehicles and consider private medical insurance. 
• Open a Portuguese bank account: It makes a lot of sense to open a Portuguese bank account before you move to the country, so you’ll be able to transfer your money. Make sure you have several forms of ID ready. 

Moving is expensive, but even more so if you’re starting a new life overseas. It’s worth having a contingency fund so you can afford to search for your new home in Portugal, including money for transporting your belongings.

Get expert financial advice

Transferring your UK pension to Portugal can be a smart move, offering benefits like easier currency management and possible tax perks.

Just be aware of the potential downsides, such as losing certain UK pension protections and managing the risks of investing abroad.

To make the most of your pension transfer and ensure everything goes smoothly, it’s a good idea to consult a financial expert. With the right guidance, you can enjoy your retirement in Portugal with confidence.

Let Unbiased quickly match you with a financial adviser for expert financial advice to ensure you make informed decisions about your pension transfer and retirement plans in Portugal.