The British community in Portugal, already robust, is witnessing accelerated growth. However, this surge in interest in establishing residence in the country is not due solely to the Algarve sun or the relaxed lifestyle. There is a powerful fiscal engine driving this trend: the significant changes to the UK tax regime, scheduled to come into force in April 2025.
For high-net-worth individuals and British retirees, the new UK tax rules create an urgency to restructure their finances. Portugal, with its specific tax regime and a renewed network of double taxation agreements, is emerging as the destination of choice to ensure fiscal security and efficiency.
1. The Inheritance Tax (IHT) Revolution: The End of Domicile
The most impactful change for expats is the abolition of the complex and dated concept of “domicile” for Inheritance Tax (IHT) purposes in the UK.
What changes?
From April 2025, IHT will be governed by a tax residence criterion. For IHT to apply to an individual’s worldwide assets (including properties and assets in Portugal), they must have been a UK tax resident for at least 10 of the last 20 tax years.
Implication for Britons in Portugal (FA ACCOUNTING Alert):
This change offers unprecedented clarity in estate planning. Residents in Portugal who distance themselves fiscally from the UK (and meet the 10-year tail provision) may see their non-UK assets excluded from the scope of British IHT. It is a fundamental opportunity to structure wealth with predictability, something the old domicile regime did not allow.
2. Concern Regarding Pensions
Although the main focus is on IHT, pensions will also undergo significant changes. An intention has been announced to subject pension funds (whether in the UK or abroad, depending on the rules) to a 40% IHT rate if the beneficiary dies after age 75, starting from April 2027.
Implication (FA ACCOUNTING Alert):
This measure requires an immediate review of pension planning. How pension funds are treated in inheritance can significantly impact the transfer of wealth to the next generations. Specialist advice is crucial to explore mitigation and structuring options in line with Portuguese legislation and the new Double Taxation Agreement.
3. Reinforced Legal Certainty: The New Double Taxation Agreement (DTA)
Portugal’s fiscal attractiveness was solidified by a recent and crucial development: the signing, in September 2025, of the new Double Taxation Agreement (DTA) between Portugal and the UK.
This new treaty, which replaces the post-Brexit regime, aims to:
- Avoid Double Taxation: Using the credit method, ensuring that income (such as pensions or rental income) is taxed fairly and not twice.
- Clarify Tax Residence: Establishing clear tie-breaker rules to determine where an individual is considered resident for treaty purposes, eliminating ambiguities.
- Greater Transparency: Through the accompanying tax information exchange agreement, in line with OECD standards.
The FA ACCOUNTING Effect:
The combination of the new DTA with the UK IHT changes creates a more stable and predictable fiscal environment for British expats. It ensures that, by complying with residency rules in Portugal, the taxpayer will have a solid legal basis for their cross-border tax obligations.
Conclusion: Planning is Key
The increase in British interest in Portugal is the logical response to a changing fiscal landscape. Portugal offers a haven of stability and a competitive tax framework (including the NHR 2.0 regime for new qualified residents), at a time when the UK introduces radical tax transformations.
However, navigating this transition – which simultaneously involves changing UK IHT rules, pension changes, and the implementation of the new DTA – requires deep knowledge in both jurisdictions.
If you are considering the move or are already a British resident in Portugal, the time to reassess your tax situation is now. The complexity of residency and succession rules demands a proactive and rigorous tax planning strategy.
Contact FA ACCOUNTING today for a personalized consultation and ensure your assets are protected and your move is fiscally efficient.
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