Taxation of unit-linked life insurance policies in Portugal (2025)

What are unit-linked insurance policies?

Unit-linked insurance policies are financial instruments that combine life insurance elements with an investment component, allowing capital accumulation with flexible management of invested funds. This product is particularly attractive from a tax perspective, especially for tax residents in Portugal.

How are unit-linked insurance policies taxed in Portugal?

As life insurance products, income derived from unit-linked insurance policies is classified as investment income (category E of Personal Income Tax – PIT). The taxable income corresponds to the positive difference between the amounts received upon redemption or maturity of the policy and the amounts invested (premiums paid).

What are the applicable tax benefits?

Investment income derived from unit-linked life insurance policies is subject to a PIT tax rate of 28% (unless originating from a tax haven, in which case the aggravated rate of 35% applies).

However, as long as at least 35% of the total premiums are paid during the first half of the policy term, a partial exemption from PIT applies as follows:

• If redemption occurs after the 8th year of the policy term, 3/5 of the income is excluded from taxation, meaning only 40% of the income is taxable (e.g., if the income amounts to €20,000, only €8,000 is subject to PIT).
• If redemption occurs between the 5th and 8th year of the policy term, 1/5 of the income is excluded from taxation, meaning only 80% of the income is taxable (e.g., if the income amounts to €20,000, only €16,000 is subject to PIT).

Considering the PIT rate applicable to investment income (28%), these reductions result in an effective tax rate of 11.2% (for redemptions after 8 years) or 22.4% (for redemptions between 5 and 8 years).

If the premiums payment requirement is not met or if redemption occurs before the 5th year of the policy, the total income is subject to tax.

What are the other advantages of unit-linked insurance policies?

Unit-linked insurance policies can serve as an effective wealth planning tool, as they allow the holding of financial investment portfolios that actively generate income without being taxed at the policy holder’s level until redemption or maturity of the policy (tax deferral policy).

Additionally, unit-linked insurance policies are frequently used as estate planning tools.

In Portugal:

• The capital paid to beneficiaries does not form part of the deceased’s estate, allowing for efficient wealth transfer outside the constraints of forced heirship rules.
• Beneficiaries are not subject to Stamp Duty, regardless of their relationship with the policyholder.

Final remarks

Unit-linked life insurance policies represent a tax-efficient solution for wealth management and succession planning, allowing for tax deferral until redemption, benefiting from reduced taxation on generated income, and providing significant advantages in asset transfer.

It is important to note that if the insurance policy is contracted and assets are transferred from personal ownership to the policy by a Portuguese tax resident (or a non-resident with assets located in Portugal), this operation may be considered a disposal of assets, subject to taxation as capital gains (category G of PIT). The taxation will depend on the type of assets and the previous holding period.

At Belim, we are available to advise you on the tax and estate planning optimisation of your assets. 

Contact us for more information.