A new tax treaty between Portugal and the United Kingdom

A tax treaty decides which of two countries may tax a given income, and how much relief the other must give. For a British owner of Portuguese property, most of the answers do not change: rental income and gains from immovable property remain taxable in the country where the property sits, which is Portugal.

What changes sits around that. Withholding on dividends is capped at 10% under the general rule, down from 15%. A nil rate applies where the recipient is a company that has held at least 10% of the capital for an uninterrupted year, and a 15% rate applies to certain exempt investment vehicles connected with immovable property. The treatment of interest and royalties is brought into line with current OECD standards.

The change that matters most to anyone holding Portuguese property through a company is the principal purpose test. Where obtaining a treaty benefit was one of the principal purposes of an arrangement, the benefit can be refused. Structures that were assembled under the 1968 convention were not designed with that test in mind.

The convention applies from the first day of 2026, which means the 2026 tax year is the first to be governed by it. Structures worth reviewing are best reviewed before the returns for that year are prepared, not after.