Major Update to UK Inheritance Tax Has Amazing Benefits for Expats in Portugal

The UK government announced changes to Inheritance Tax (IHT) rules in the latest budget, offering significant savings for UK expatriates in Portugal.

From April 6th, 2025, the UK will switch to a residency-based taxation system for Inheritance Tax, changing the rules for how the tax applies to expats. This would allow UK expats in Portugal to potentially be exempt from inheritance tax.

Under the new rules, British expats living outside the UK for at least 10 out of the last 20 years will not be subject to Inheritance Tax on non-UK assets, such as overseas property, savings, and investments, according to a recent article in the Financial Times.

These changes announced in the UK government's recent budget would provide substantial tax relief for those living in Portugal for 10 years or more; however, it would only be for those who keep their assets outside of the UK and in Portugal or abroad.

For expats who have been UK tax residents for more than 10 out of the last 20 years, Inheritance Tax will still apply to all worldwide assets under the current rules.

Expats intending to stay in Portugal or considering relocating from the UK should also strongly consider moving their assets so that their inheritance beneficiaries are exempt from future tax burdens.

This would be a significant relief for expats who plan their financial and property portfolios wisely. By keeping assets outside the UK, British expats can ensure they remain free from the heavy burden of the UK Inheritance Tax. When combined with the benefits of NHR in Portugal, this offers significant planning opportunities.

Alongside assets, experts recommend that pension plans should also be reviewed. Due to pension funds being under the scope of UK inheritance Tax from April 2027 onwards, they will be subject to a high inheritance tax rate of 40%. Moving your pension plan outside of the UK to Portugal can mean inheritance beneficiaries can be exempt from this high tax rate.

The best time to do this is during your NHR (Non-Habitual-Residency) tax status period, where you can take proactive steps to structure your pension plan in Portugal to also achieve much-reduced tax rates.

Under NHR tax status, eligible individuals benefit from reduced tax rates on foreign-sourced pensions, dividends, and capital gains for 10 years.

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

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

Sarah Lisbie, a UK expat who has lived in Portugal for 4 years with NHR status, is already acting to move her pensions, savings, and other UK assets to Portugal:

"When I first heard about the changes to UK inheritance tax, I knew I couldn't delay. I've already consulted with Portugal Pathways and began the process of restructuring my pension and key assets in Portugal during my NHR tax status period."

"Not only am I securing significant tax savings once my NHR 10-year tax period ends, but I'm also ensuring my family won't face the heavy 40% inheritance tax rate on my pension."

Portugal Pathways has expert professional advisors regulated in both jurisdictions who can guide you through these updates and create a plan tailored to your needs.

By understanding and acting on these changes, British expats can reduce tax liabilities and secure a brighter financial future whilst restructuring their assets in Portugal so they are not subject to inheritance tax.

Arrange a free, no-obligation discovery call with one of our experts via the form below.

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