UK Budget Brings Positive Changes for Expats in Portugal

The UK government has announced significant changes to how Inheritance Tax (IHT) is applied, bringing substantial benefits for UK expats living in Portugal.

Effective from 6 April 2025, the UK will adopt a residence-based taxation system, which could bring a major change to how IHT applies to UK expatriates, especially those with Non-Habitual Resident (NHR) status in Portugal.

New Rules for Inheritance Tax (IHT)

Under the new residency-based IHT system, IHT will apply to worldwide assets for individuals who have been UK tax residents for at least 10 out of the last 20 tax years, known as the "10-year tail".

However, British expats who fall outside this threshold will generally escape IHT on non-UK assets, provided they meet certain conditions.

For many UK expats, this means that as long as you've been non-resident for at least 10 out of the past 20 tax years, your non-UK assets—such as property, savings, and investments—will no longer be subject to 40% Inheritance Tax, resulting in a significant saving.

This change, announced in the Autumn Budget 2024, also impacts excluded property trusts, which may need to be reviewed.

This is a significant relief for expats who plan their financial and property portfolios wisely.

By keeping your assets outside the UK, you can ensure they remain free from the heavy burden of UK Inheritance Tax. When combined with the benefits of NHR in Portugal, this offers significant planning opportunities.

Why Current Pension Planning Should be Reviewed

One of the proposed changes that affects UK expats in Portugal is the inclusion of pensions in the scope of UK IHT.

This means that on death, any remaining pension fund will be subject to tax at 40%, despite the introduction of a new pension nil rate band.

This change, set to come into effect in April 2027, makes it even more critical for UK expats to take proactive steps with their pension funds, especially during a Non-Habitual Residency (NHR) period in Portugal when they can access them at much reduced income tax rates.

Niall MacDonald, Chartered Wealth Manager at Beacon Global Wealth Management, adds: "Making pension pots subject to IHT means everyone should review how they are currently using their pension. NHR 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."

Plan Your Financial Future Today

Paul Stannard, Chairman and Founder of Portugal Pathways, comments: “These changes to inheritance tax provide a timely opportunity for British expats in Portugal to reassess their financial strategies.

‘’With careful planning, particularly under the Non-Habitual Residency tax regime, expats can optimise their wealth and ensure their assets are protected for the long term. ‘’

By understanding and acting on these changes, British expats can reduce tax liabilities and secure a brighter financial future. These proposals are still subject to change as they go through Parliament and have consultation.

Portugal Pathways alongside its partners at Beacon Global Wealth Management are here to guide you through these updates and create a plan tailored to your needs. Arrange a call with one of our experts and discover how you can optimise your finances for life in Portugal via the form below:

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