If you moved to Portugal but kept your UK property as a rental, you’re not alone — and you’re probably wondering who gets to tax your rental income. The answer, like most things in cross-border tax, is “both countries, but with protections.” Here’s the complete picture for UK expats in Portugal in 2026.

This is one of the questions I get most often from clients who’ve relocated to the Algarve or Lisbon but held onto their UK home or investment property. The good news is that the UK-Portugal double tax treaty is designed to prevent you being taxed twice on the same income. The not-so-good news is that navigating two tax systems simultaneously does take some careful planning — and getting it wrong can be expensive.

First Things First: Where Is Rental Income Taxed?

Under international tax rules, rental income is generally taxed in the country where the property is located. So if your property is in Leeds, Birmingham, or Cornwall, the UK has the primary right to tax that income — even if you now live in Portugal.

Portugal also has the right to tax it, because as a Portuguese tax resident, you’re subject to Portuguese tax on your worldwide income. This sounds like you’d get taxed twice — but the UK-Portugal Double Taxation Convention (DTC) prevents this by allowing you to offset UK tax already paid against your Portuguese liability.

In practice, this means:

• You report and pay tax on your rental income in the UK first
• You then declare that same income in Portugal
• Portugal gives you a credit for the UK tax you’ve already paid
• You only pay additional tax in Portugal if the Portuguese rate exceeds what you paid in the UK

Your UK Obligations as a Non-Resident Landlord

HMRC has a specific scheme for UK landlords who live abroad: the Non-Resident Landlord (NRL) scheme. This affects how your rental income is collected and reported.

Under the NRL scheme, if your letting agent collects rent on your behalf, they are normally required to deduct basic rate income tax (currently 20%) at source and pay it to HMRC — unless you’ve registered to receive your rent gross. You can apply to HMRC to receive rent without tax deducted (using form NRL1) if you’re up to date with your UK tax affairs. Most of my clients do this, because it’s far easier to manage the tax yourself than to have your agent deduct it and then claim it back via self-assessment.

Regardless of how the tax is collected, you still need to file a UK Self Assessment tax return each year. You’ll use the SA105 supplementary page to report your property income. The calculation works just like it does for UK residents:

• Total rental income received
• Less allowable expenses (mortgage interest relief via section 24, repairs and maintenance, letting agent fees, insurance, and so on)
• Less your UK personal allowance (£12,570 in 2025/26) — note: non-residents may not always be entitled to this, but UK nationals living in the EU typically are, subject to eligibility rules
• Tax on the remainder at your applicable UK income tax rate

One important point that catches people out: the mortgage interest deduction rules changed several years ago. You can no longer deduct mortgage interest as a direct expense. Instead, you get a tax credit worth 20% of the interest paid (the basic rate relief). If you’re a higher rate taxpayer, this makes a meaningful difference to your bill.

How Portugal Taxes Your UK Rental Income

As a Portuguese tax resident, you’re required to declare your worldwide income on your annual IRS return (the Portuguese equivalent of self assessment). UK rental income goes on Anexo J — the section for foreign income.

The rate at which Portugal taxes this income depends on your status:

Under standard IRS rules: Foreign rental income is typically aggregated with your other income and taxed at Portugal’s progressive rates, which range from 13.25% up to 48% for the highest earners. However, if you elect to apply the same rate that would apply if all the income were Portuguese-sourced rental income, this can sometimes be more favourable.

Under NHR 1.0 (the old regime): If you obtained NHR status before it closed to new applicants, UK rental income was generally taxed at a flat 28% in Portugal (or possibly exempt if it could be taxed in the UK under the DTC — this is a nuanced area). Many of my clients on NHR 1.0 found their UK rental income was effectively exempt in Portugal, but this depended on their specific circumstances and the treaty interpretation.

Under NHR 2.0 (the IFICI regime, introduced in 2024): The picture has changed. NHR 2.0 focuses on qualifying professional income rather than providing broad exemptions for passive income like rent. UK rental income for IFICI holders is generally taxed in Portugal at the standard progressive rates, subject to the double tax credit. If you’re on this new regime, don’t assume the same rules apply as the old NHR — they don’t.

In all cases, Portugal will give you a credit for the UK tax you’ve already paid on that income, up to the amount of Portuguese tax due. So if you paid £2,000 in UK tax on your rental income, Portugal would only ask for additional tax if your Portuguese rate produces a higher liability on the same income.

The Double Tax Treaty in Practice: A Real Example

Let me walk through a simplified example to show how this works. Say you’re a client of mine — retired, living in the Algarve, with a UK rental property producing £15,000 of net rental income after expenses:

In the UK: After applying your personal allowance of £12,570, you have £2,430 taxable at 20% = approximately £486 in UK tax.

In Portugal: You declare the same £15,000 (converted to euros). If your Portuguese marginal rate on this income comes out at, say, 28%, the Portuguese tax due would be around €4,200 (on circa €17,250 equivalent). You’d then deduct a credit for the £486 UK tax paid (converted to euros), reducing your Portuguese liability accordingly.

In this scenario, Portugal takes the larger share because their effective rate is higher than the UK rate, but you’re not being taxed twice on the full amount — the treaty credit does its job.

The numbers shift significantly once your UK personal allowance is used up against other income (State Pension, for example), because more of the rental income becomes taxable in the UK at higher rates. This is where proper tax planning — ideally reviewing your position before the tax year ends — genuinely saves money.

Common Mistakes I See (and How to Avoid Them)

In my experience working with UK expats across the Algarve and beyond, these are the errors that come up most often with rental income:

Not registering with the NRL scheme — If your letting agent doesn’t know you’re non-resident and you haven’t registered, you may be defaulting into a position where tax is being deducted incorrectly (or not at all, leaving you with unexpected liabilities at year end).

Forgetting to declare in Portugal — Some expats assume that because the UK taxes it first, they have nothing to declare in Portugal. This is wrong. Portugal requires worldwide income disclosure, and the penalties for omission can be substantial.

Not keeping records of UK tax paid — You’ll need proof of the UK tax paid to claim the Portuguese tax credit. Your UK tax calculation summary and proof of payment are essential documents — keep them alongside your Portuguese IRS return.

Mixing up the rules for NHR 1.0 and NHR 2.0 — If your NHR 1.0 status has expired and you’ve moved onto the standard Portuguese tax regime, or you’re on the new IFICI regime, the old exemption rules no longer apply. This is probably the most expensive mistake I’ve seen clients make.

Ignoring the impact on Portuguese IRS bands — Adding UK rental income to your Portuguese return can push your total income into a higher band, increasing the rate on all your Portuguese income. This is particularly relevant for retirees with UK State Pension, private pensions, and rental income to declare.

What About Capital Gains When You Eventually Sell?

This is worth mentioning briefly, because rental income and capital gains on UK property are closely linked questions. When a Portuguese resident sells a UK property, the same treaty logic applies: the UK taxes the gain first (using non-resident capital gains tax rules), and Portugal gives a credit. However, Portugal’s CGT rate on property (currently 50% of the gain is taxed at your marginal rate, unless you elect otherwise) can result in additional tax due in Portugal. We’ve covered CGT in detail in a previous post — it’s a topic that deserves its own full article.

Frequently Asked Questions

Do I need to file a UK tax return if I live in Portugal and rent out a UK property?

Yes. As a non-resident landlord with UK rental income, you’re required to file a UK Self Assessment return each year, reporting your property income on form SA105. You should also register under the Non-Resident Landlord scheme if your letting agent manages the property.

Will Portugal tax my UK rental income on top of what I pay in the UK?

Portugal taxes worldwide income, so you do need to declare your UK rental income there. However, the UK-Portugal double tax treaty means you’ll receive a credit for UK tax paid, so you only pay additional tax in Portugal if the Portuguese rate exceeds the UK rate on the same income.

Does NHR status protect me from Portuguese tax on UK rental income?

It depends on your NHR version. Under NHR 1.0, UK rental income was often exempt in Portugal if it could be taxed in the UK under the treaty. Under NHR 2.0 (IFICI), this exemption doesn’t apply in the same way, and standard rates apply subject to the treaty credit. Always verify your specific situation with a qualified adviser.

What allowable expenses can I deduct from UK rental income as a non-resident landlord?

The same expenses as UK resident landlords: letting agent fees, repairs and maintenance (not improvements), buildings insurance, accountancy fees relating to the rental, and a 20% tax credit on mortgage interest. You cannot deduct the full mortgage interest as an expense — only the 20% basic rate credit applies since the Section 24 rules came in.

What records do I need to keep?

Keep records of all rental income received, all allowable expenses (with receipts), your UK Self Assessment tax calculation and proof of payment, and your Portuguese IRS return and supporting documents. These are needed to justify your tax credit claim in Portugal and to defend your position in the event of an enquiry from either HMRC or the Portuguese tax authority (Autoridade Tributária).

What to Do Next

If you own UK rental property and you’re resident in Portugal, the most important thing is to make sure you’re compliant in both countries — and that you’re not leaving money on the table by missing available deductions or failing to claim the treaty credit properly. A bit of advance planning each tax year can make a meaningful difference.

If you’d 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 — including navigating the cross-border tax complexities that come with keeping UK assets.

Matthew Renier is a Chartered Financial Adviser at Arthur Browns Wealth Management, based in the Algarve, Portugal. He has over 15 years of experience helping British expats manage their pensions and financial planning across borders.

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