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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.
Under the new residence-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.
David Vacani, Founder of Beacon Global Wealth Management, explains: "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.’’
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."
For UK expats, these changes emphasise the importance of keeping assets outside the UK and restructuring pensions strategically. At Beacon Global Wealth Management, we're here to guide you through these updates and create a plan tailored to your needs.
We are able to work in both the UK and Portugal, and all of our team are regulated in both jurisdictions.
Contact us at info@bgwealthmanagement.net to learn more about how these changes affect your NHR status in Portugal and overall tax planning.
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.
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After our discovery call, we will summarise our understanding of your current situation and the key objectives which will ensure we're aligned with your goals.
Once you’re happy that we’re right for you, we’ll provide our recommendations and implement them for you. But there’s never any pressure from us to proceed – that’s just not our style.
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