Starting April 6th, 2025, the UK will transition to a residency-based taxation system for Inheritance Tax (IHT), changing the rules for how the tax affects expats.
The new system means UK expats in Portugal could be exempt from inheritance tax.
Once the new rules come into effect, British expats who have lived outside the UK for at least 10 of the past 20 years will no longer be subject to Inheritance Tax on non-UK assets, including overseas property, savings, and investments.
According to the Serviço de Estrangeiros e Fronteiras (SEF), as of the end of 2024, an estimated 47,000 UK nationals live in Portugal, with a majority based in the Algarve. This could have far-reaching effects on expats in the region.
Announced in the UK government's latest budget, these reforms offer significant tax relief for those who have resided in Portugal for a decade or more—provided their assets are held outside the UK, in Portugal or other foreign locations.
However, expats who have been UK tax residents for more than 10 of the last 20 years will continue to be subject to Inheritance Tax on their worldwide assets under existing rules.
Those planning to settle in Portugal or relocate from the UK should consider asset restructuring to ensure their heirs are exempt from future tax liabilities.
This reform presents a major opportunity for UK expats seeking professional support to manage their financial and property portfolios strategically.
By keeping assets outside the UK, British expats can mitigate the substantial burden of the UK Inheritance Tax. Combined with the benefits of Portugal’s Non-Habitual Residency (NHR) tax regime, this offers valuable tax planning advantages.
Andreas Pretorius, founder of Pretorius Wealth Solutions, emphasises the importance of early NHR tax planning within the first seven years of the Portuguese tax regime: “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.”
Alongside asset and income planning, experts recommend the review of non-Portugal-derived pension pots.
From April 2027 onwards, pension funds will fall within the scope of the UK Inheritance Tax and will be subject to a high tax rate of 40%. Transferring your pension plan from the UK to Portugal could allow your beneficiaries to be exempt from this substantial tax burden.
The ideal time to undertake this transfer is during your NHR tax status period, enabling you to take proactive steps in structuring your pension in Portugal to benefit from significantly reduced tax rates.
Under the NHR tax regime, eligible individuals can enjoy 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 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."
There has also been a rise in people moving their pension pots and exploring alternative investment funds under Portugal's Golden Visa residency-by-investment programme, which is very tax-efficient for most investors, but it is always important to seek professional advice.
The Golden Visa programme offers significant flexibility, requiring just seven days of residence per year. After five years, investors and their qualifying family members can apply for permanent citizenship and a dual passport in Europe, granting them unrestricted access to the EU Schengen Zone.
Investors in the Golden Visa residency-by-investment programme can invest their €500,000 in one or more alternative investment funds approved by the regulators or choose a fund that adopts a blended approach, investing across multiple sectors where Portugal is outperforming the market.
These diversified strategies appeal to investors seeking more stability and exposure to high-growth opportunities, potentially mitigating risks tied to a single sector.
Paul Sheedy, international advisor to the Portugal Future Fund, an alternative investment fund approved for Golden Visa residency-by-investment in Portugal, said: “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.”
Arrange a no-obligation discovery call with one of Portugal Pathways’ professional advisors today.
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.
