I try avoid starting whole new topics, but this doesn’t really fit in the old NHR 1.x ones.
Something to keep an eye on if you’re on “old NHR”… may need future legal challenges to clarify…
recent Binding Ruling 20646 by the Portuguese Tax and Customs Authority has introduced an unexpected complication regarding the classification of pension income—especially when received as a lump sum.
The ruling argues that not all pension income qualifies as a pension for tax purposes—particularly lump sum payments. The key issue lies in the way the Portuguese Tax and Customs Authority interpretation of pension withdrawals:
– Lump sums only qualify as pension income if they meet Portugal’s domestic pension rules, which limit capital withdrawal to one-third of the total fund.
– If they do not meet these requirements, they are instead classified as investment income, which could result in higher taxation in Portugal.
This interpretation directly conflicts with international tax principles
Given this uncertainty, opting for withdrawals under the limits defined by the most recent ruling is the safest option.
…
Notwithstanding the above, legal experts handling similar cases believe that courts will likely rule in favour of taxpayers if the Portuguese tax authorities apply inconsistent interpretations.
If I am reading this correctly, there is nothing to worry about for the UK pensioners as the tax-free lump sum is limited to one-quarter of the total fund, i.e. less than one-third. And even that they are making it harder to get by increasing the age threshold by 2 years in 2028.
It might impact people looking to completely exit their UK pensions (e.g. to Lux, Ireland, Malta) in order to cut all UK ties, and start the clock for distancing themselves from UK tax residence.
It takes 10 (20?) years for the UK to stop thinking they should have have a piece of expats’ estates with its punishing 40% Inheritance Tax.
If you remain UK domiciled as many British expatriates do (domicile is a harder tie to break than residence) your worldwide estate remains subject to 40% UK inheritance tax.
The friendlest interpretation I’ve seen is 2 years before you’re released from the UK tax man’s clutches: UK “ties” include available accomodation, substantive UK work, 90+ days in UK in past 2 years, or more time in UK than anywhere else
I’ve also seen people say 4 years or even 10 years after totally leaving the UK.
There is new UK legislation coming into effect this April that is supposed to make things clearer. But that article I linked to earlier is a bit confusing - if I left 8 years ago, but the previous 10 were in the UK then am I still caught by “10 or more of the previous 20 tax years?” And are there now two different laws running simultaneously until the old one times out??
If the government is to be believed the concept of non-dom will be removed entirely from the tax system when the new rules are introduced, so there will be a cliff-edge not a time out. Out with the old, in with the new.