Euroguy

I'm not "getting it" if UK state pension isn't taxable then why would Portugal tax you on something like that??

So, example'
10k GB pounds state pension
8k GBP company pension

What would the Portuguese tax authorities take out of that if you declared it, & how would they know if the above amounts were paid into UK banks??

RichardHenshall

Why do you think it isn't taxable?

mikemike

Euro guy, all income is taxable subject to allowance. The state pension is allocated against the allowances first and the pension being way lower than the allowance is regarded as non taxable. As the income is assessed it falls under double tax arrangement and is not taxed in portugal

Euroguy

Your tax-free Personal Allowance

The standard Personal Allowance is £12,500, which is the amount of income you do not have to pay tax on.

RichardHenshall

But it does impact on tax in Portugal in so much as it may push other income into higher marginal rates.

Euroguy

Thank you for an informative reply Mike.

I just checked & the State Pension that l was referring to isn't taxable by itself, but l do realise that anything above whatever the Portuguese tax threshold would take the state pension into account.
Do many people go down the "double taxation" route?

Red Eric

Not correct, I'm afraid.

Income from UK state pensions most definitely are taxable in Portugal, regardless of which country the bank account they are paid into is located. The only pensions that are exclusively taxed in the source country would be those decreed public service pensions in DTA terms.

Diddion

Can we just wrap up the state pension taxation issue. There is a difference between ´taxable´and ´taxed´. The UK state pension is taxable, since it contributes to your total income. It is, however, paid gross - and any tax due on it is actually levied against other income. So it is taxable, but paid untaxed.

In Portugal it is merely another form of income, and is subsequently taxed at normal scale rates, together with other personal pension or earned income. What do you mean, Euroguy, about going down the double taxation route? This is an agreement between two countries so that you are not taxed twice on the same income. The DTT means that you end up paying the higher tax of the two jurisdictions. If you do not make a Double Taxation claim, in some situations you will find that you pay the full amount of tax on the income in both jurisdictions, so are taxed twice rather than taxed once in one jurisdiction and topped up in the other.

RichardHenshall

Euroguy, you need to recognise the difference between taxable and tax-free and also that income that might be tax-free for a resident in one country might be taxable on a resident in another country. As an example, income and gains on investments in a UK ISA account is tax-free for a UK resident but is taxable if that resident then moves to Portugal, leaving the account as it was. NHR status may affect the tax rate applied to particular types of income or gains from outside Portugal but that's a separate discussion.

Euroguy

I have so much to learn, & so little time to do it............................

David_c

Diddion, do you benefit from the NHR? Because the outcome of the pension tax is considerably different from a PT perspective.
The Convention to avoid Double Taxation in the majority of cases gives the residence state the right to levy that type of income - hence the UK should not withhold anything.
On the other hand, under NHR provisions this income is eligible to benefit from full exemption under certain criteria.

Diddion

Yes, David c, we do benefit from NHR. Whilst a way to go before it ends, I have been trying to get to grips with the taxation position. So, this is our situation and my understanding of what will eventually happen. I have a teachers pension, personal pension, state pension, and some UK rental income.

During NHR.
1. Teachers pension is always taxed in UK
2. Rental income is always taxed in UK/also potentially by Portugal, who don´t levy tax under NHR
3. Personal pension is paid in UK net of tax (see below)
My UK personal allowance is deducted at the time of payment from the total tax calculated using the total income of 1,2 and 3 above (actually, it only applies to 1 and 2 eventually, since personal pension falls out of the UK calculation)
Notes on this;
All income which is paid in the UK is eligible for the UK Personal Allowance, unless it is removed or altered in the future. This has been considered in the past, and is not publicly being considered at the moment. If it is altered, it is unlikely to be removed from government pensions, but is likely to be removed or reduced from most other income (eg rental income)
1. My teachers pension is always taxed in UK and never taxed by Portugal. This is because it is a ´Government Pension´ and such pensions are ONLY taxed in the country which pays the pension. Do not confuse this with State Pension.
2. Rental Income is paid by the rental agent having had tax deducted. Any tax eventually overpaid by the agent to HMRC is returned via self assessment claim (this is not a DTA issue, just normal taxation with the expat tweak of having tax deducted by the agent)
3. Personal Pension is paid in the UK having had tax deducted. However, even though tax is deducted by the UK pension provider, it is not actually due, as you correctly say.. So a claim under DTA is made to HMRC through the self assessment return, and that tax paid is returned

After or No NHR
1. Teachers pension remains disregarded by Portugal, continues to be taxed in the UK and the personal allowance still applies.
2. Personal pension and state pension are taxed in Portugal. However, the tax bands in which they sit are stacked above the government (not state) pension figure. In other words, the teachers pension pushes up the personal and state pension income into higher bands, whilst not itself incurring tax (which, as I said, is levied in the UK). As I now understand, the tax due is calculated by reference to the tax bands and table, but for the purposes of calculating tax on earned or pension income, the first 4104 of that income is disregarded.
4. Rental income can be taxed according to the normal bands, but the 4104 deduction is not applied to rental income. However, it is normally taxed at a straight 28% as that usually brings a better (!!) figure. Tax paid in the UK is offset against the (almost certainly) higher tax due in Portugal, under DTA. So, I believe that one would pay the extra tax to Portugal to make up the difference between tax deducted in UK and the 28% tax charged in Portugal - but I have not yet experienced how this works.

I believe I have got it right (Richard?.......Eric?........)

David_c

It went from a "Simple income tax calculation question" to this real quick!
This analysis would require more time and scrutiny.
For the scenario after the NHR (+10 years), all pensions should be declared and most certainly subject to tax, safe that the UK paid tax could be deducted. Any double taxation (eg, because of different rates) will be avoided by the treaty.

Diddion

All pensions declared, yes, but Government pensions are only taxed in UK.

Red Eric

I'd say you've got that absolutely spot on.