What is the 85-15 rule in Portugal?

The 85-15 rule is a way of taxing only the income part of a payment that also hands your own money back to you. It sits in article 54 of the Código do IRS, under pension income (Category H), and it has nothing to do with the 0.75 coefficient freelancers use.

What article 54 says

1. Where a temporary or life annuity, or a benefit from a complementary pension scheme, includes a repayment of capital, the capital part is deducted before tax.
2. Where the capital part cannot be identified, 85 percent of the payment is deducted. The remaining 15 percent is the taxable amount.
3. Neither rule applies to complementary pension benefits if the contributions were paid by someone other than you, typically an employer, and were not taxed in your hands at the time.

What that means in euros

The figures are our arithmetic on the 85 percent deduction. The taxable 15 percent is added to your other income and taxed at the ordinary progressive rates, 12.5 to 48 percent in 2026.

Where it applies, and where it does not

It fits a purchased annuity, or a personal pension funded from money that was already taxed. It does not fit a state pension such as US Social Security or the UK State Pension, and it does not fit a workplace pension funded by untaxed employer contributions: those are taxed as ordinary pension income, without the 85 percent deduction. Advisers at Spectrum IFA describe the same split, with the favourable treatment reserved for the part you funded yourself.

The catch

The tax authority decides how a foreign product is classified, and many foreign plans are neither clean annuities nor Portuguese style pension schemes. A US IRA, a UK SIPP or a drawdown plan may be treated as a pension, an annuity or an investment, with a different tax result each time. Keep the contribution history that shows who paid in and whether it was taxed, and have a Portuguese tax adviser confirm the classification before you file. This page is general information, not tax advice.

For what a pension costs without this rule, read how foreign pensions are taxed in Portugal after NHR and our Portugal income tax guide.