UK-Portugal Double Tax Treaty for STR Rental Income 2026 (Post-Brexit)

UK-Portugal Double Tax Treaty for STR Rental Income 2026 (Post-Brexit)

A British owner with an Algarve villa or a Lisboa apartment listed on Airbnb pays tax twice in principle: once in Portugal where the property sits, and again in the UK where the owner is tax resident. The 1968 UK-Portugal Convention for the Avoidance of Double Taxation, still in force in 2026, prevents the double burden through a foreign tax credit mechanism. Below is the practical post-Brexit playbook: art. 6 immovable property, art. 24 elimination of double taxation, HMRC SA106 and Portuguese Modelo 30.

The Convention between the United Kingdom and Portugal for the Avoidance of Double Taxation, signed on 27 March 1968 and supplemented by the 1973 Protocol, remains the operative bilateral instrument in 2026. Brexit did not affect this treaty: it predates EU membership and was negotiated as a pure bilateral. What Brexit did change is the surrounding administrative framework, notably the Portuguese requirement to appoint a representante fiscal for UK residents and the loss of EU mutual assistance in tax recovery under Directive 2010/24.

Which State Has the Primary Taxing Right

Article 6 of the 1968 UK-Portugal Convention covers income from immovable property. The text is unambiguous: income derived by a resident of a Contracting State from immovable property situated in the other Contracting State may be taxed in that other State. In plain English, Portugal taxes Portuguese AL (Alojamento Local) income first, regardless of where the owner lives.

This is the universal OECD model rule for real estate, and it covers every form of immovable property income: long-term rentals, short-term holiday lets, agricultural produce, mineral rights. AL income from a Lisboa flat, an Algarve villa or a Porto townhouse falls squarely under art. 6. The fact that the booking is taken on Airbnb, paid through Stripe and credited to a UK bank account does not change the source: the property is in Portugal, the income is Portuguese-source, primary taxing right belongs to Portugal.

How Portugal Taxes Non-Resident AL Income

A UK-resident owner is treated as a non-resident in Portugal for IRS (Imposto sobre o Rendimento das Pessoas Singulares) purposes. Two regimes apply:

• Default flat rate: 25% on net rental income (gross minus the documented expenses or, more commonly for AL, gross minus the 65% presumed-expense coefficient under Categoria B simplificado). This is a final withholding for non-residents, declared annually via Modelo 3 IRS with anexo F or anexo B.
• Optional scale rates: a non-resident may elect to be taxed at standard IRS scale rates (14.5% to 45% in 2026) on worldwide income, declaring everything to AT (Autoridade Tributária). Rarely beneficial unless your worldwide income is very low.

Beyond IRS, Portuguese AL income is also subject to municipal contributions: IMI (Imposto Municipal sobre Imóveis, 0.3% to 0.45% urban property annual tax), taxa municipal turística (overnight tourist tax, EUR 1 to 4 per night depending on city), and AT social security contributions if you opt for Categoria B (simplified regime exempts non-residents from social security on rental activity in most cases).

How the UK Taxes the Same Income

HMRC taxes UK residents on worldwide income (subject to the remittance basis for non-domiciled individuals before April 2025, abolished from 6 April 2025 by the new Foreign Income and Gains regime). A UK-resident landlord with a Portuguese AL declares the income on the SA105 (UK property pages) or SA106 (foreign income pages) of the Self Assessment return, depending on whether the property qualifies as a Furnished Holiday Letting (FHL).

The FHL regime itself was abolished on 6 April 2025 by the Finance Act 2025, removing the special UK treatment that previously aligned holiday lets with trading income. From tax year 2025-26 onwards, all overseas property is reported as ordinary foreign property on SA106, with standard expense rules. Mortgage interest relief on overseas property is restricted to a 20% basic-rate tax credit, mirroring the UK domestic property regime.

Income tax bands in the UK for 2025-26: personal allowance GBP 12,570 (tapered above GBP 100,000), basic rate 20% up to GBP 50,270, higher rate 40% up to GBP 125,140, additional rate 45% above. Scotland operates separate bands.

Article 24 Elimination of Double Taxation: The Foreign Tax Credit

Without relief, a UK-resident owner with Portuguese AL income would pay 25% in Portugal plus up to 45% in the UK on the same euro: a combined burden close to 70%. Article 24 of the 1968 Convention solves this through the credit method.

The mechanism: the UK gives credit against UK tax for the Portuguese tax paid on the same income, capped at the UK tax that would otherwise be due on that income. The Portuguese tax is the foreign tax credit (FTC). Practical sequence:

1. Pay Portuguese IRS first on the AL income (usually flat 25% withheld or paid on Modelo 3).
2. Convert the Portuguese tax paid into GBP at the HMRC monthly average rate (or spot rate at payment date).
3. Declare the gross Portuguese income on SA106 in GBP at the same conversion convention.
4. Claim the FTC by entering the Portuguese tax paid in box 2 of SA106 ("Foreign tax taken off or paid").
5. HMRC offsets the FTC against the UK tax computed on the Portuguese-source income, capped at that UK tax.

Worked Example: Algarve Villa, UK Higher-Rate Owner

Numbers for tax year 2026 (Portuguese fiscal year 2025 results, declared by 30 June 2026):

Line	EUR	GBP (at 1.18)	Notes
Gross AL income	40,000	33,898	120 nights at 333 EUR average
Coefficient simplificado (35%)	14,000	11,864	Taxable base under Categoria B
Portuguese IRS at 25% (non-resident)	3,500	2,966	Final tax in Portugal
UK gross income (full 40k)	40,000	33,898	SA106 box 14, before deductions
UK allowable expenses (estimated)	8,000	6,780	Cleaning, agency fees, IMI, insurance
UK net foreign property profit	32,000	27,119	Carried to SA106 summary
UK tax at 40% (higher rate)	n/a	10,847	Before FTC
Foreign tax credit (capped at UK tax)	n/a	2,966	Portuguese IRS in GBP
UK tax after FTC	n/a	7,881	Net UK liability
Combined burden	n/a	10,847	Effective 32% on gross GBP income

Two points worth noting. First, the UK-side expense computation differs from the Portuguese coefficient: in Portugal the simplificado regime presumes 65% expenses without itemising, in the UK you must itemise actual expenses on SA106. Most owners under-claim UK expenses because they default to the Portuguese figure. Second, the FTC is capped at UK tax on the same income, so if Portugal taxes you at 25% but the UK only taxes you at 20% on that slice, you cannot reclaim the difference.

Modelo 30: The Portuguese Side That Trips UK Owners

Modelo 30 is the Portuguese declaration of payments made to non-residents subject to withholding. AL hosts who pay rent or fees to a non-resident (for example a foreign cleaning company, a non-resident co-host) must file Modelo 30 monthly. For UK owners receiving Airbnb payouts, Modelo 30 is relevant in the reverse direction: Airbnb Ireland Unlimited Company files its own DAC7 report to AT, but the host still declares the income on annual Modelo 3 IRS with anexo B or F.

The reconciliation HMRC sometimes asks for is between the Airbnb dashboard, the Portuguese Modelo 3 declaration and the SA106. Discrepancies of more than 5% trigger a HMRC enquiry letter. Keep the following bundle for at least 6 years: Airbnb yearly earnings summary, Portuguese Modelo 3 receipt with anexo B detail, IRS payment proof, IMI annual statement, and a GBP conversion log line by line.

NHR and IFICI Interaction with the Treaty

If you hold a valid NHR (Non-Habitual Resident) status from a pre-2024 Portuguese registration, you are Portuguese tax resident and the treaty rules invert: now Portugal is the residence state and the UK is the source state for any UK-source income. Your Portuguese AL income is taxed in Portugal at standard IRS rates (NHR did not exempt domestic-source income), and your UK pension is taxed in Portugal at the flat 10% NHR pension rate, with treaty-credit available for any UK tax. From 1 January 2024 onwards new entries are limited to IFICI (Incentivo Fiscal à Investigação Científica e Inovação), which is narrower and does not apply to pension or AL income.

Frequently Asked Questions

Do I need to file in both countries every year?

Yes. Portuguese Modelo 3 IRS by 30 June of the year following the fiscal year (so 2025 income declared by 30 June 2026), and UK Self Assessment by 31 January (online) or 31 October (paper). Missing either deadline triggers separate penalties: from EUR 150 in Portugal under art. 116 RGIT, GBP 100 plus daily charges in the UK under FA 2009 Sch. 55.

Can I take the remittance basis on my Portuguese AL income?

No, not from 6 April 2025. The non-domiciled remittance basis was abolished and replaced by the Foreign Income and Gains regime, which exempts certain new arrivals to the UK for 4 years but does not assist long-term UK residents. Foreign rental income is taxed on the arising basis, which means as it accrues in Portugal, regardless of whether you bring the cash to the UK.

Does the treaty cover capital gains on selling the Portuguese property?

Yes, partly. Article 13 covers capital gains. Gains from the sale of immovable property situated in Portugal are taxable in Portugal (50% of the gain included in the IRS base for non-residents from 2023 onwards, taxed at the 25% flat rate on net gain after deductions for acquisition cost, improvements and inflation correction). The UK then gives FTC under art. 24 for the Portuguese tax paid, against UK CGT (24% residential property rate from 30 October 2024 Budget).

What if Airbnb already withholds tax?

Airbnb does not withhold Portuguese IRS on host payouts. It withholds VAT (IVA) on its service fee in some scenarios and reports gross host receipts to AT under DAC7 (Decreto-Lei 17/2024), but the income tax obligation remains with the host. UK PAYE does not apply to foreign rental income, so you must self-assess the Portuguese tax (paid via Modelo 3 settlement) and UK tax (Self Assessment).

How do I convert EUR to GBP for HMRC?

HMRC accepts three methods: spot rate at each transaction date, average rate for the year (HMRC publishes monthly averages), or end-of-year rate. Pick one and apply it consistently across all entries on SA106. Most practitioners use the HMRC monthly average for income and the spot rate for one-off events like the IRS payment. Document your choice in a working paper.

Should I incorporate a UK Ltd or a Portuguese Lda for AL?

Rarely worthwhile for a single-property owner. UK Ltd ownership of Portuguese real estate triggers Portuguese IMT at the higher 6.5% rate (corporate buyer), Portuguese IRC 25% on profits, plus a 35% withholding on any dividend distribution to the UK Ltd unless reduced by the parent-subsidiary directive (no longer applicable post-Brexit) or the 1968 Convention art. 10 (15% on portfolio dividends). Direct individual ownership is usually simpler and cheaper.

Need help reconciling Airbnb dashboards with Portuguese Modelo 3 and UK SA106, and computing the foreign tax credit cleanly? The Standard Package HostReady (Portugal) includes a Modelo 30 reconciliation template, an IRS Categoria B walkthrough for non-residents and a GBP-EUR conversion log designed for UK owners filing in both jurisdictions.