British Expats in Portugal Face Inheritance Tax Shake-Up After UK Reform

A major overhaul of the United Kingdom's inheritance tax framework, introduced in April 2025, is prompting British nationals living in Portugal to urgently reassess their estate planning. The reform replaces the long-standing domicile-based system with one that places greater weight on long-term UK residence -- and the implications for the estimated 50,000 British citizens in Portugal could be significant.

What Changed

Historically, UK inheritance tax (IHT) was tied closely to the concept of domicile -- a legal determination of where a person considers their permanent home. British nationals who had established domicile in Portugal could often shield overseas assets from the UK tax net.

Under the new rules, HMRC now evaluates potential inheritance tax exposure based primarily on residency patterns and ongoing ties to the UK. This means assets that were previously considered outside the scope of UK inheritance tax may now fall within it, including:

• UK-based property, even if the owner is living abroad
• Pensions held in UK schemes
• Investment portfolios with UK-linked components
• Internationally held assets that maintain a connection to the UK

The threshold at which UK inheritance tax applies remains at 325,000 pounds (approximately 380,000 euros), with the tax charged at 40 percent on the value above that amount. For many British expats with property or pension assets in the UK, the potential exposure is considerable.

Why Portugal Is a Special Case

Portugal's own inheritance tax regime is notably favorable by European standards. Portugal abolished traditional inheritance tax in 2004, replacing it with a stamp duty (Imposto do Selo) of 10 percent that applies only to Portuguese-based assets and only to recipients who are not spouses or direct descendants. In practice, most family inheritance in Portugal passes tax-free or at minimal cost.

This generous treatment has made Portugal particularly attractive to British retirees and investors seeking to reduce their estate's overall tax burden. Many structured their affairs on the assumption that by establishing domicile in Portugal, they could benefit from Portuguese tax treatment while largely escaping UK inheritance tax on non-UK assets.

The April 2025 reform disrupts that calculus. Because the new framework focuses on residency history rather than domicile alone, British nationals who spent significant time in the UK before moving to Portugal -- or who maintain ongoing UK residency ties -- may find they remain within the UK inheritance tax net despite living abroad.

Structures Under Review

Financial advisers specializing in cross-border planning report a marked increase in consultations since the reform took effect. Several wealth management structures that were common among British expats are now being reassessed:

• Self-Invested Personal Pensions (SIPPs): These UK pension wrappers may now carry different IHT treatment depending on the holder's residency status under the new rules.
• Qualifying Non-UK Pension Schemes (QNUPS): Previously used to hold assets outside the UK tax net, these structures need re-evaluation against the new residency-based criteria.
• Offshore trusts: Long used for estate planning, their effectiveness under the new framework depends on how HMRC interprets the settlor's residency history.
• UK property portfolios: Buy-to-let investments and former family homes retained in the UK are now more clearly within scope regardless of domicile status.

Practical Steps for British Expats

Estate planning specialists recommend several immediate actions for British nationals living in Portugal:

First, review existing wills and estate structures with an adviser who understands both UK and Portuguese succession law. Portugal applies forced heirship rules that differ significantly from English common law, and the interaction between the two systems adds complexity.

Second, assess whether existing pension arrangements still function as originally intended under the new tax framework. A SIPP or QNUPS that was structured for tax efficiency under the old domicile rules may need restructuring.

Third, consider the Brussels IV Regulation, which allows EU residents to choose the law of their nationality to govern their succession. British nationals in Portugal can opt for English law, avoiding Portuguese forced heirship -- but this choice interacts with the new UK tax rules in ways that require specialist advice.

Finally, document residency carefully. Under the new system, HMRC's assessment of long-term residence patterns is central. Maintaining clear records of time spent in Portugal versus the UK, along with evidence of genuine settlement, is more important than ever.

An online briefing on the topic, organized by Portugal Pathways and cross-border wealth specialists, is scheduled for Wednesday, 18 March 2026, at 10:00 AM Lisbon time, for those seeking a detailed overview of the changes and their implications.

Related reading: Getting Married in Portugal as a Foreigner in 2026 — Civil Ceremonies, the Conservatória, and Property Regimes