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February 13, 2025

How does the UK Budget Impact British Expats in Portugal?

How does the UK Budget Impact British Expats in Portugal?

The recent UK Budget introduces several tax measures that will significantly affect UK expats and overseas residents, especially those residing in Portugal. While some of these changes are still awaiting final legislation, the new provisions already hold implications for financial planning, pension withdrawals, and wealth transfer.

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What Should British Expats Know About the Latest UK Budget Inheritance Tax Changes?
British expats look to move UK pension pots into more tax efficient structures that don't impact inheritance or other tax burdens

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One of the most impactful changes is the 40% inheritance tax on unused pension funds upon death, scheduled to take effect from April 2027. For affluent British expats, this could complicate the way they pass on their wealth to family members, increasing the importance of efficient planning.

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With the new tax measures, UK expats may need to review their plans for pension use and inheritance to avoid unexpected tax liabilities on funds they hope to pass down. For expats in Portugal, who have Non-Habitual Residency (NHR) tax status, as a results of this budget, many are now choosing to draw down their UK pension at 10% to avoid any inheritance issues in the UK down the line.

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This is a major tax hike on pension funds for affluent expats in Portugal, but effective financial planning can help mitigate these effects.
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Many affluent expats in Portugal are already leveraging NHR tax rules to withdraw UK pension funds while reallocating investments into more tax-efficient structures that suit post-NHR income needs.

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Paul Stannard, Founder of Portugal Pathways, notes: ‘’We are seeing in the last few days an influx of affluent UK expats in Portugal and in the UK requesting meetings to expedite and accelerate their cross-border structuring of their assets to mitigate these new taxes.’’

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“The latest UK budget highlights the importance of securing your income and assets through early and long-term planning with regulated international cross-border advisors that are qualified to give advice from both a UK and a Portuguese tax and wealth management perspective.

''For those in Portugal, understanding how inheritance tax and pension rules interplay is now more crucial than ever.

''Our Portugal Pathways network of international private wealth has over 1200 UK high-net-worth families and individuals currently considering or going through the process of relocating to Portugal, which makes up 17.6% of our community, second only to the US which is 21.2%.

Since the UK October 2024 Budget, we have had a major surge in wealthy UK individuals and entrepreneurs following the Labour Budget announcement.''

What are the October 2024 UK Budget changes?
UK government trying to balance the books could impact expats in Portugal who don't take early action

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The budget also introduces modifications to the Overseas Transfer Charge, adding financial complexity for UK pensions in payment. The aim here is to prevent UK residents from exploiting double tax-free allowances while living abroad and to curb the risk of transferring tax-relieved pension savings out of the UK. However, for affluent British expats in Portugal, this change could also introduce currency exchange risks, affecting pension transfers and income stability in a foreign currency.

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This change forces clients to weigh the risks of currency fluctuations on pension income against a 25% charge on pensions transferred out of the UK. Navigating the complexities of the latest UK expat tax changes and budget updates is crucial for managing long-term wealth.
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British entrepreneurs and value creators have been significantly impacted by recent changes in the UK Government Budget. For disposals made on or after October 30, 2024, capital gains tax has increased, rising from 10% and 20% on assets other than residential real estate or carried interest, to 18% and 24% respectively.

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For those UK affluent families and entrepreneurs affected there is still the chance to secure the NHR tax status before it closes to new entrants at the end of the year and is replaced by NHR 2.0 tax regime which will not have the same low tax benefits for UK pensions. However, the new NHR 2.0 tax regime in 2025 is expected to be friendly to entrepreneurs and investors coming into the country for innovation and high-skilled related professions.

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What Can UK Expats in Portugal Do to Protect Their Wealth?

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As these changes unfold, wealthy UK expats in Portugal are strongly encouraged to act early to safeguard their assets and income, especially if they are under NHR tax regime while this is still possible. With potential increases in inheritance taxes on pension funds, now is the time to reassess.

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Paul Stannard highlights the necessity of a proactive approach: “Expats who are informed and prepared and take early action will be best positioned to navigate these changes.

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‘’Reviewing your financial setup in Portugal with expert guidance can make a substantial difference in preserving wealth and avoiding unnecessary tax implications. For existing NHR tax holders it’s a wakeup call as its also very important to mitigate future progressive taxes in .”

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Disclaimer: The information on the Portugal Pathways and Portugal Investment Owners Club (P Club for short) websites and in email communications is for general informational purposes only and should not be construed as legal, tax, or financial advice. You should consult and check with a qualified professional advisor before relying on any information provided on this website or in email communications. As it relates to investments in Golden Visas or other wealth management solutions offered by regulated and professional advisors, it is important to note that past performance is no guarantee of future returns. Private equities can be highly illiquid and come with risk and should always be under professional independent advice.

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Current NHR Tax Holders: Are you structured and protected?

Mitigate high taxes and safegaurd your finances by planning early for the end of your NHR status!

Explore

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Disclaimer: The information on the Portugal Pathways and Portugal Investment Owners Club (P Club for short) websites and in email communications is for general informational purposes only and should not be construed as legal, tax, or financial advice. You should consult and check with a qualified professional advisor before relying on any information provided on this website or in email communications. As it relates to investments in Golden Visas or other wealth management solutions offered by regulated and professional advisors, it is important to note that past performance is no guarantee of future returns. Private equities can be highly illiquid and come with risk and should always be under professional independent advice.

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