Significant Changes to UK Inheritance Tax Provide Huge Advantages for Expats in Portugal

The UK government's latest budget introduced updates to Inheritance Tax (IHT) regulations, offering considerable savings for UK expatriates residing in Portugal.

With changes proposed to start from April 2025, the UK will adopt a residency-based system for Inheritance Tax, altering how the tax impacts expatriates. This shift means UK expats in Portugal may no longer be liable for inheritance tax.

Under the revised rules, British expats who have lived outside the UK for at least 10 out of the last 20 years will be exempt from Inheritance Tax on non-UK assets, such as overseas property, savings, and investments, as highlighted in a recent Financial Times report.

These reforms, detailed in the UK government's last budget, could offer significant inheritance tax savings for individuals living in Portugal for a decade or longer—provided their assets remain outside the UK and are held in Portugal or other international locations.

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 British 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.

As a UK expat, you can learn more about how the new IHT inheritance tax could apply to you by watching back Portugal Pathways' webinar, 'Navigating UK Inheritance Tax Changes for Expats', or emailing steve.philp@portugalpathways.io, who can arrange an initial discovery call with one of our experts in this field.

Alongside investment assets, experts recommend that pension plans should also be reviewed. Due to UK pensions being under the scope of the potential changes to 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.

These proposed changes in certain circumstances, along with capital gains tax, could make the UK government the biggest beneficiary of someone's estate on death. The move from a domicile to a residency-based taxation system opens up huge benefits for UK expats who plan early and take professional advice.

The most tax-efficient time to move your pension is during your NHR (Non-Habitual-Residency) tax status period, where you can take proactive steps to maximise your position, mitigate these and other progressive taxes in the UK, and structure your pension to 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 UK pension pots potentially subject to UK inheritance tax, Brits should review how they currently plan to use this pension pot so that much of the value is not lost. This strategy ensures UK expats can fully capitalise on these upcoming inheritance tax changes in the UK while avoiding unnecessary loss of value."

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.

As a UK expat, you can learn more about how the new IHT inheritance tax could apply to you by registering to attend Portugal Pathways' webinar, 'Navigating UK Inheritance Tax Changes for Expats', taking place on Tuesday, January 28th, 2025, at 10:30 AM Lisbon Time.

Attending this webinar, you’ll learn more about how the latest UK Inheritance Tax changes could offer significant tax advantages for expats in Portugal who meet the residency criteria and the next steps you need to take to take advantage of this opportunity.

Register Here.

About Portugal Pathways

Portugal Pathways has supported hundreds of Golden Visa residency-by-investment applications and aims to continue to do this through its Portugal Investment Owners Club and associated Portugal's Future Fund. These organisations also provide expert guidance on luxury property, wealth management, business setup, tax optimisation, private healthcare, and bespoke relocation solutions to enhance life, along with money-can't-buy experiences and investments in Portugal.

Enquiries

For further information about the potential future effect of the IHT Inheritance tax regime on expats in Portugal or other enquiries related to relocating to or investing in Portugal, please contact Steve Philp at steve.philp@portugalpathways.io.