Inheritance Tax and Early NHR Planning Opportunities for UK Expats in Portugal

From 6th April 2025, the UK will transition to a residency-based system for Inheritance Tax (IHT), fundamentally altering how the tax applies to British expatriates. This reform brings significant tax advantages for UK expats residing in Portugal, particularly those who have lived outside the UK for an extended period.

Under the new system, British expats who have resided outside the UK for at least 10 of the last 20 years will no longer be liable for UK Inheritance Tax on non-UK assets, including overseas property, savings, and investments. With an estimated 47,000 UK nationals residing in Portugal, a majority of whom live in the Algarve region, this policy shift could have widespread implications for the expat community.

Announced as part of the UK government’s latest budget, these changes offer considerable tax relief for British nationals who have settled in Portugal for a decade or more, provided their assets are held outside the UK. However, expats who have been UK tax residents for more than 10 of the past 20 years will continue to be subject to UK Inheritance Tax on their global assets under existing rules.

Strategic Tax Planning for UK Expats

Expats planning to relocate to Portugal or those already residing there should consider restructuring their assets to optimise tax efficiency and ensure their heirs are protected from future tax liabilities. By keeping assets outside the UK, British expats can reduce exposure to IHT while leveraging the benefits of Portugal’s Non-Habitual Residency (NHR) tax regime.

Andreas Pretorius, founder of Pretorius Wealth Solutions, underscores the importance of early NHR tax planning:

“Many expats can end up sleepwalking into trouble if they don’t plan before the end of their 10-year NHR tax status. Once their NHR tax benefit expires, individuals can become subject to tax rates as high as 48%.

“We recommend that NHR tax holders in Portugal begin planning within the first seven years of their status to minimise potential tax burdens and get clarity and peace of mind. We support expats in Portugal through this process of structuring their cross-border income and assets to optimise their situation and we are happy to have an initial discovery call.”  

UK Pension Planning

In addition to asset planning, UK expats should review their pension funds. From April 2027, UK pension pots will be included within the scope of Inheritance Tax, facing a tax rate of 40%. Transferring a UK pension to Portugal could allow beneficiaries to avoid this substantial tax liability.

The best time to execute this transfer is during the NHR tax period, which allows expats to take proactive steps in structuring their pensions for tax efficiency. Under the NHR tax regime, individuals benefit from significantly reduced tax rates on foreign-sourced pensions, dividends, and capital gains for a 10-year period.

Paul Stannard, Chairman and Founder of Portugal Pathways and the Portugal Investment Owners Club, highlights:

"With pension pots becoming subject to inheritance tax, everyone should review how they currently use their pension. NHR tax status allows you to plan your future and optimise tax efficiency while safeguarding wealth. This strategy ensures expats can fully capitalise on the latest tax rules while avoiding unnecessary liabilities."

Golden Visa and Alternative Investment Opportunities

In response to these tax changes, there has been a notable rise in expats moving their pension funds and exploring alternative investment strategies under Portugal’s Golden Visa residency-by-investment programme. This scheme remains a highly tax-efficient solution for many investors, but professional guidance is essential.

The Golden Visa programme provides significant flexibility, requiring only seven days of residence per year. After five years, investors and their families can apply for permanent residency or citizenship, granting them access to the EU Schengen Zone.

Golden Visa investors can allocate €500,000 into one or more regulator-approved alternative investment funds. Some funds adopt a blended strategy, diversifying investments across high-performing sectors in Portugal.

Paul Sheedy, international advisor to the Portugal Future Fund, an alternative investment fund approved for the Golden Visa scheme, explains:

“A blended approach to investment—spanning sectors such as luxury hospitality and tourism, renewable energy, media, healthcare, and technology —not only aligns with Portugal's dynamic economic landscape but also creates a resilient portfolio that thrives across sectors.

“We have seen time and time again that a blended investment approach can protect against underperforming sectors in a portfolio, giving investors more security and downside protection.”

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About Portugal Pathways

Portugal Pathways has assisted hundreds of investors in securing Golden Visa residency-by-investment. Through its expert network, the company provides guidance on luxury property, wealth management, tax optimisation—including post-NHR planning—private healthcare, IFICI tax incentives, money transfers, and bespoke relocation solutions.

About Portugal Future Fund

The Portugal Future Fund strategically invests in key sectors, driving growth and innovation across Portugal. Approved for Portugal’s Golden Visa residency-by-investment, it offers a unique opportunity for impactful and rewarding participation.

Portugal Investment Owners Club

The Portugal Investment Owners Club, or P Club for short, is a unique investor membership community designed for discerning individuals, families, and organisations committed to exploring and capitalising on life in Portugal and enjoying money-can't-buy experiences and exclusive events.

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Disclaimer: The information on the Portugal Pathways and Portugal Investment Owners Club (P Club for short) websites and in email communications is for general informational purposes only and should not be construed as legal, tax, or financial advice. You should consult and check with a qualified professional advisor before relying on any information provided on this website or in email communications. As it relates to investments in Golden Visas or other wealth management solutions offered by regulated and professional advisors, it is important to note that past performance is no guarantee of future returns. Private equities can be highly illiquid and come with risk and should always be under professional independent advice.

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