Pension Deduction — Dedução Específica de Pensões

The pension deduction (dedução específica para pensões) is a deduction applied to Category H (pension) income to reduce the taxable base. For 2026, the deduction is the greater of €4,462 or 11.5% of gross pension, capped at €6,430. For pensions above approximately €44,000, the deduction is reduced. This deduction recognizes that pensioners have reduced earning capacity and provides some relief against full progressive taxation. The pension deduction is separate from the personal deduction and tax credits. Pensioners with foreign pensions under NHR Legacy used the 10% flat rate instead — not the progressive system with this deduction.