Navigating the New Inheritance Tax Landscape as a British Expat in Portugal

For British expats who have made Portugal their home, understanding the evolving landscape of UK Inheritance Tax (IHT) is more critical than ever.

Recent changes in UK legislation, effective from April 6, 2025, significantly alter how IHT applies to non-UK residents.

This includes those who have benefited from the now-closed Non-Habitual Residency (NHR) tax regime or the new Tax Incentive for Scientific Research and Innovation (IFICI), also known as NHR 2.0.

Let’s explore how the UK Inheritance Tax has changed in 2025, why Portugal is a favourable location for British Expats regarding Inheritance Tax, and key strategies for British Expats in Portugal to navigate this new landscape.

How the UK Inheritance Tax has Changed in 2025

Previously, UK IHT was primarily based on an individual's "domicile" – a complex legal concept that often meant even long-term expats could remain liable for IHT on their worldwide assets. This is now changing.

On April 6, 2025, the UK moved to a residence-based system for IHT.

This is a significant shift. Under the new rules, if you have been resident outside the UK for 10 or more of the last 20 tax years, your non-UK assets will generally not be subject to UK IHT.

This is a welcome development for many British expats in Portugal, as it offers a clearer path to removing non-UK assets from the scope of UK IHT.

However, it's crucial to remember that any assets you continue to hold in the UK will remain subject to UK IHT, regardless of your residency status. This includes UK property, bank accounts, and other investments.

Furthermore, there's a "tail" period: if you cease to be a UK resident, you will generally remain subject to UK IHT on your worldwide assets for a period of up to 10 years, though this can be reduced in certain circumstances.

Portugal's Favourable Stance on Inheritance

One of Portugal's long-standing attractions for expats is its favourable inheritance tax regime. Portugal does not levy a traditional inheritance tax on direct family members.

Spouses, children, grandchildren, parents, and grandparents are exempt from Portuguese inheritance tax (Imposto do Selo or Stamp Duty) on inherited assets.

For other beneficiaries (e.g., siblings, distant relatives, and friends), a 10% stamp duty generally applies to inherited assets in Portugal.

This means that for direct family members, inheriting assets in Portugal will typically be free of Portuguese inheritance tax.

Schedule a no-obligation call here and gain expert insight from a cross-border inheritance tax advisor.

NHR and IFICI: Income Tax Benefits and IHT Considerations

While the NHR regime (now closed to new entrants) and the IFICI (NHR 2.0) scheme primarily focus on income tax benefits, their impact on your overall financial planning, including inheritance, cannot be overlooked.

NHR (Non-Habitual Residency) Tax Regime (Closed to new entrants)

Those who successfully obtained NHR tax status before its closure to new entrants on December 31, 2023, continue to benefit from its provisions for their 10-year NHR tax status period.

While NHR offers significant income tax exemptions on foreign-sourced income (including, for a period, a 10% flat rate on foreign pensions, though this was initially 0%), it's important to understand that NHR status itself did not automatically exempt you from UK IHT.

UK IHT liability historically hinged on domicile. However, with the upcoming UK IHT changes, NHR beneficiaries who meet the new 10-year non-residency rule for UK IHT will find their non-UK assets largely protected from UK IHT.

IFICI (NHR 2.0) - Tax Incentive for Scientific Research and Innovation

This new regime, in place since January 1, 2024, aims to attract highly skilled professionals to Portugal. IFICI offers:

A 20% flat tax rate on Portuguese-sourced income from qualifying employment and self-employment activities for 10 years.

0% tax on most foreign-sourced income and capital gains, with the notable exceptions of foreign pension income (which is taxed at progressive rates up to 53%) and income from blacklisted jurisdictions.

Similar to NHR, the IFICI regime itself is focused on income tax. However, the ability to reside in Portugal and potentially reduce your overall tax burden, combined with the new UK IHT rules for long-term non-residents, creates a powerful synergy.

For those under IFICI, carefully managing your residency duration will be key to leveraging the upcoming UK IHT changes.

Learn more about IFICI (NHR 2.0) here.

Key Strategies for British Expats in Portugal

To navigate this new landscape effectively, British expats in Portugal, particularly those under NHR or IFICI, should consider the following:

Understand Your Domicile and Residency: While the UK is shifting to a residency-based IHT system, the concept of domicile can still be relevant in certain transitional periods or for other tax purposes.

It's crucial to understand your domicile status under UK law and your residency status under both UK and Portuguese law.

Monitor Your UK Residency: The 10-year rule for UK IHT exemption on non-UK assets is paramount. Keep meticulous records of your time spent in and out of the UK.

Review Your Asset Location: Consider restructuring your assets. Moving non-UK assets out of the UK, where appropriate, can significantly reduce your potential UK IHT liability once you meet the 10-year non-residency threshold.

This is particularly relevant for pension funds, which, from April 2027, will also be included in UK IHT calculations unless transferred overseas.

Portuguese Will and Succession Planning: While Portugal has favourable inheritance tax rules for direct heirs, it also has "forced heirship" rules that dictate a portion of your estate must pass to direct family members.

If you wish to distribute your estate differently, you must have a Portuguese Will that clearly states your intentions to bypass these rules where legally permissible.

Seek Professional Advice: The interplay between the UK and Portuguese tax laws and the specifics of NHR or IFICI is complex. Consulting with a cross-border financial advisor and a solicitor specialising in international wills and estates is essential.

Expert cross-border financial professionals can help you

- Assess your current situation.

- Develop a tailored inheritance plan.

- Ensure compliance with both UK and Portuguese regulations.

- Optimise your wealth transfer strategies.

- Correctly notify HMRC of your Portuguese residency.

Schedule a no-obligation call with a cross-border inheritance tax advisor here.

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About Portugal Pathways

Portugal Pathways has supported hundreds of Golden Visa residency-by-investment applications and provides expert guidance through its professional supply chain network on luxury property, wealth management, and tax optimisation, including post-NHR tax regime planning, as well as private healthcare, IFICI tax incentive applications, money transfers and bespoke relocation solutions to enhance life and investments in Portugal.

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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. Golden Visa investments need to be held for 6 to 7 years to allow for permanent citizenship/passport in the EU.