You have a UK SIPP, an old workplace pension, a stocks and shares ISA, and a chunk of cash sitting in a Barclays account. You are sixty-two, settled in the Algarve, and you need to start drawing an income. Which pot do you touch first?

It is one of the most common questions I get asked, and one of the most badly answered online. The textbook UK advice — “draw your ISA last because it is tax-free” — falls apart the moment you cross the Portuguese border. The tax-efficient withdrawal order for a UK expat in Portugal looks very different to the one your old IFA in Surrey would have suggested. Get it wrong, and you can lose tens of thousands of euros over a twenty-year retirement.

This guide walks through how to sequence withdrawals from your UK pensions, ISAs, GIAs (general investment accounts), and cash savings when you are tax-resident in Portugal. It assumes you have completed the move properly — NIF in hand, NHR status confirmed if you qualified for it under the old rules, or registered under the new IFICI regime — and that you have an NT (no tax) code on your UK pensions.

Why the UK Order of Withdrawal Stops Working in Portugal

In the UK, advisers usually suggest the following sequence: spend cash and taxable accounts first, then pension drawdown, and leave the ISA for last. The logic is simple. ISAs are completely tax-free inside the UK wrapper, so the longer the money compounds in there, the better. Pensions also remain outside your estate for inheritance tax purposes (at least, they will until April 2027 under current proposals), so spending them last protects the heirs.

None of this logic survives a move to Portugal. Portugal does not recognise the UK ISA as a tax-privileged wrapper. It treats it like any other investment account. Dividends and interest are taxed annually at 28%, and gains are taxable at 28% (or at your marginal rate if you elect aggregation and that helps). Worse, you are tax-resident on your worldwide income from day one, so the shield your ISA gave you in the UK simply does not exist here.

Meanwhile, the UK pension — which used to be the slow-and-steady fallback — can become surprisingly tax-efficient in Portugal if you sequence it correctly. The 25% tax-free lump sum is recognised by Portugal in many cases (though the rules around this are more nuanced than you would hope), and the rest is taxed at progressive Portuguese income tax rates rather than UK rates.

The Four-Pot Framework

Most UK expats arrive in Portugal with money in some combination of four buckets:

1. UK pensions — SIPPs, workplace defined contribution schemes, and sometimes a deferred final salary scheme
2. ISAs — usually a stocks and shares ISA, occasionally a cash ISA
3. General Investment Account (GIA) — taxable unwrapped investments in unit trusts, OEICs or shares
4. Cash — easy-access savings, fixed-rate bonds, premium bonds

Each of these is treated differently by Portuguese tax law, and each behaves differently under the UK-Portugal double tax treaty. The art of an efficient withdrawal order is matching the right pot to the right year of retirement.

Step One: Empty Your GIA Early

The general investment account is usually the first place to look. It sits outside any tax wrapper, so every year you hold it you are paying tax on dividends (28% in Portugal) and accruing taxable capital gains. Realising those gains over multiple tax years lets you use your allowances and avoid stacking everything into one painful year.

There is a subtle trap here. UK clients often think they should “bed and ISA” their GIA holdings before moving — sell them, buy them back inside the ISA, reset the gain. That can be smart in the UK. It is irrelevant once you are Portuguese-resident, because Portugal will tax the new gain anyway. If you are still in the UK and planning the move within the next 12 to 18 months, look at realising gains while you are still UK-resident and have the annual exempt amount (currently £3,000, much reduced from historical levels).

Once you are in Portugal, the GIA is your worst long-term home for money. Use it first. Spend it down to zero — or use it to fund a temporary cash buffer — within the first three to five years of retirement.

Step Two: Use Cash Strategically, Not Defensively

Cash deserves its own paragraph because UK expats hoard it. I see clients in their late sixties with two or three years of living expenses in an Algarve current account paying 0.1%. That money is losing real purchasing power every month inflation runs above the deposit rate.

The right role for cash in retirement is as a short-term buffer to avoid forced selling of investments in a down market — typically twelve to eighteen months of net spending. Anything beyond that is dead weight. If you have more cash than that, deploy it. Either into your portfolio (carefully, in chunks) or into Portuguese-resident bonds, which can be more tax-efficient than UK savings accounts for residents.

Note that the savings interest you earn in the UK is still reportable in Portugal, and subject to Portuguese tax at 28% unless the bank withholds at source under the double tax treaty. Many expats are surprised that “tax-free” UK premium bond wins are taxable in Portugal — they are.

Step Three: ISA Withdrawals — Earlier Than You Would Think

This is the part that horrifies the UK-trained adviser. But the maths is clear. The ISA gives you no tax shield in Portugal. Every year it compounds inside the wrapper, the Portuguese tax authority is happily noting the dividends and gains as taxable events. (Strictly, gains are only taxable on disposal, but dividends roll up every year regardless.)

Drawing your ISA in years three to ten of retirement makes sense for two reasons. First, it lets you keep the pension wrapper intact and growing for longer. Second, ISA withdrawals do not count as taxable income in either jurisdiction — they are simply realised capital. So you can use ISA money to fund living expenses in years where your pension drawdown is being deliberately throttled to stay in a lower tax band.

One important caveat. If you held the ISA for many years before moving to Portugal and built up a large unrealised gain, you face Portuguese capital gains tax on disposal. There are strategies to spread the realisation over several tax years to keep the gain in a lower bracket — talk to an adviser before selling a large position in one go.

Step Four: UK Pensions — The Workhorse

Your UK pensions are usually the largest pot and the most flexible. Once you have NT status on the pension (which means HMRC issues an NT — no tax — code to the pension provider so it pays you gross), every penny of pension income is taxed only in Portugal.

Portuguese income tax in 2026 runs in bands from 14.5% on the first €8,059 up to 48% above €83,696, with an additional solidarity surcharge above €80,000. The trick is to plan pension withdrawals so you fill the lower bands without crossing into the higher ones each year. For many clients that means drawing £20,000 to £35,000 a year from the SIPP rather than chunks of £50,000+.

If you qualified for the original NHR regime, the pension treatment is even more favourable — a flat 10% on foreign pension income for the ten-year qualifying period. Under IFICI (NHR 2.0), foreign pensions are no longer covered, so the planning is different again. Whichever regime applies, the principle is the same: smooth the income, fill the lower bands, and avoid one-off big lump sums that push you into the 35%+ marginal range.

Step Five: When (and Whether) to Take the 25% Tax-Free Lump Sum

The 25% pension commencement lump sum is one of the biggest planning decisions an expat faces. As I covered in a recent post on the topic, Portugal does not always treat the lump sum as tax-free, and the timing matters hugely. Taking it in the wrong tax year can trigger an unwelcome bill.

For sequencing, the lump sum often sits naturally between step four and the rest of your pension drawdown — used to clear a mortgage, fund a major one-off purchase, or top up your cash buffer. But it is rarely something I would recommend taking purely “because you can”.

What About the State Pension?

The UK state pension is paid gross to Portuguese-resident expats (no UK tax deducted under the treaty) and is taxable in Portugal at your marginal rate. It is not lump-sum-flexible — it pays a fixed weekly amount from your selected start date. The decision is when to claim it, not how much.

For most clients in their early sixties with sizeable private pensions, I suggest deferring the UK state pension to age 67 or beyond. The deferral uplift is currently 5.8% per year, which is very hard to beat anywhere else. And once your other pension pot is partly drawn down, the state pension fills the gap nicely at lower marginal tax rates.

Putting It Together: A Sample Sequence

For a 62-year-old client with £400k SIPP, £80k ISA, £40k GIA, £60k cash, and a UK state pension starting at 67, a typical efficient sequence might look like this:

• Years 1-3 (ages 62-64): Spend down GIA and surplus cash. Take SIPP drawdown of around £18,000-£22,000 per year — just into the second Portuguese tax band. Keep ISA untouched.
• Years 4-7 (ages 65-68): Begin partial ISA realisation in tranches of £10,000-£15,000 per year. Continue moderate SIPP drawdown. State pension claimed at 67.
• Years 8 onwards: Increase SIPP drawdown to maintain real income. Use remaining ISA balance to smooth tax bands in years where SIPP income would otherwise push you above the higher rate threshold.

This is a simplified example. The right answer depends on the size of each pot, your spending pattern, your health, whether you qualified for NHR, and whether you intend to return to the UK at some point. Every client gets a different answer — but the principles above hold for most expats.

Frequently Asked Questions

Can I take all of my UK pension as one lump sum and move the cash to Portugal?

You can take any amount you like from a UK SIPP from age 55 (57 from 2028), but the tax consequences are usually grim. Once the 25% tax-free portion is accounted for, the rest is taxed as Portuguese income at progressive rates. Taking the whole pot in one year would land most clients in the 48% band. Phasing the withdrawal over multiple years is almost always more tax-efficient.

Are UK ISAs taxed in Portugal?

Yes, they are. Portugal does not recognise the UK ISA wrapper. Dividends and interest are taxed annually at 28% (or your marginal rate if you elect aggregation). Capital gains on disposal are taxed at 28%. The wrapper is treated as a standard investment account by the Portuguese tax authority.

Does Portugal tax the 25% tax-free pension lump sum?

It depends on the precise mechanism by which the lump sum is paid and when. Some interpretations treat it as a tax-free capital event, others as taxable pension income. The case law is evolving and the safest course is to get specific advice before drawing it.

Can I keep my UK SIPP after moving to Portugal?

In most cases yes, although some SIPP providers refuse to hold accounts for non-UK residents. Those who do continue to administer the pension normally — you simply receive payments with NT (no tax) status and report the income in Portugal. A growing number of expats also consider a QROPS or international SIPP, though that is a longer conversation.

What if I plan to move back to the UK eventually?

Then the order of withdrawal is even more important. The Portuguese tax cost of fully depleting an ISA you would have kept tax-free back in the UK can be significant if your return is only a couple of years away. Planning here gets nuanced and is one of the most common reasons clients ask for a full review before drawing down anything.

What to Do Next

The right withdrawal sequence is a multi-year plan, not a one-off decision. The best time to think about it is the year before you start drawing — but a review at any point can save tax for years to come.

If you would like to discuss how this affects your personal situation, get in touch with our team. We specialise in helping UK expats in Portugal make the most of their pensions and investments, and a withdrawal sequencing review is one of the most common pieces of work we do.

Matthew Renier is a Chartered Financial Adviser at Arthur Browns Wealth Management, based in the Algarve, Portugal. He has over twenty years of experience helping British expats manage their pensions and financial planning across borders. For more information on the Portuguese tax treatment of pension income, see HMRC’s double taxation treaty guidance or the Portuguese tax authority.

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