For British expats enjoying life in Portugal, the UK government’s new pension transfer rules could disrupt retirement plans.

Introduced in the October 2024 Budget and now in effect, these changes to the Overseas Transfer Charge (OTC) tighten the rules on transferring pensions abroad, leaving expats with fewer options and higher risks if they fail to seek specialist cross-border financial advice.

With a 25% tax charge now applying more broadly, these rules highlight the urgent need for expats to speak to professionals to protect their retirement savings.

What’s Changed?

The OTC, a 25% tax on certain transfers from UK-registered pension schemes to qualifying recognized overseas pension schemes (QROPS), has been in place since 2017.

Previously, British expats transferring pensions to QROPS in the European Economic Area (EEA) or Gibraltar were exempt, provided they resided in those regions. This exemption offered a key planning tool for retirees managing cross-border pensions.

However, as of October 30, 2024, the exemptions have narrowed. The OTC now applies to transfers to QROPS in the EEA or Gibraltar if the individual is either a UK resident or living in a different EEA country. The only remaining exemption is for transfers to a QROPS based in the same country where the individual resides.

For British expats living in Portugal, this means that transferring pensions to schemes based in other EEA countries, such as Malta, could trigger the 25% tax. This change is particularly challenging for those who have historically relied on the flexibility of QROPS for tax efficiency and better control of their pensions.

Impact on expats in Portugal

Jake McLaughlin, Executive Director of deVere Portugal, is urging expats to take these changes seriously and act quickly. “For British expats in Portugal, this is a significant shift,” McLaughlin explains. “QROPS remains an incredibly effective tool for cross-border retirement planning, but the new rules mean there’s less margin for error.”

McLaughlin stresses that the implications are particularly severe for those with pensions based in a different EEA country. “Imagine saving for decades, only to see 25% of your hard-earned pension wiped out because of a poorly timed or planned transfer. That’s a very real risk now.”

Why Immediate Action Is Crucial

Although the rules are already in place, McLaughlin emphasizes that it’s not too late for expats to safeguard their retirement plans. Transfers to a QROPS based in Portugal, where the retiree resides, remain exempt from the OTC. However, identifying the right scheme and ensuring compliance with both UK and Portuguese regulations can be complex.

“The sooner expats seek advice, the more options they’ll have,” McLaughlin says. “Delays could result in rushed decisions or missed opportunities, especially with the rules now actively enforced.”

He also notes that many expats underestimate the complexity of pension transfers. “This isn’t a straightforward process,” he adds. “Without professional guidance, it’s easy to make mistakes that could have long-lasting financial consequences.”

Solutions for expats

Despite the challenges, McLaughlin remains optimistic about the options available to British expats in Portugal. “These changes don’t eliminate the benefits of pension planning—they just make it more important to get the details right,” he explains.

“With proper planning, expats can still use pension transfers to manage their wealth effectively and secure their financial future.”

At deVere Portugal, McLaughlin and his team are working closely with clients to provide tailored solutions. “Every expat’s situation is unique, and that’s why personalized advice is so important. This is about creating a strategy that fits your retirement goals.”

The new OTC rules may seem like a setback, but for expats in Portugal, they don’t have to be insurmountable. With the right advice, it’s still possible to make the most of your pension and enjoy the retirement lifestyle you’ve worked so hard to achieve.

McLaughlin sums it up: “This is a critical moment for expats in Portugal. The new rules are complex, but they’re not unmanageable. With professional guidance, you can meet these changes and ensure your retirement plans remain on track.”

If you’re an expat with a UK pension living in Portugal and concerned about how the new OTC rules might affect your pension, now is the time to act.

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You can contact Jake with any questions here: jake.mclaughlin@devere-portugal.pt or the deVere Portugal Office +351 22 110 9071 or book a meeting with him here https://calendly.com/jake-mclaughlin/review