https://www.blevinsfranks.com/uk-tax-reforms-expats-in-portugal/
UK tax reforms: What British expatriates need to know .
By Stephen Rankine, Private Client Manager, Blevins Franks
It’s a new era in the UK, with the autumn budget introducing a raft of tax reforms. Some are already in effect; others start with the new tax year on 6th April or the following years. Here we look at how the UK inheritance tax, domicile and pension reforms affect British expatriates in Madeira – is it time to reconsider your UK assets? If you are thinking of leaving the UK, Portugal offers welcome tax planning opportunities along with lifestyle benefits.
Inheritance tax reforms – pensions to become taxable and nil rate band extended
With effect from April 2027, your UK pension funds will no longer be protected from UK inheritance tax (IHT). Any unused pension funds and death benefits will be included in the value of your estate for IHT purposes. This will push many more families over the allowances and significantly increase inheritance tax bills.
Even if you, as a non-UK resident, are not liable for IHT on your worldwide assets, the assets you own in the UK remain subject to this tax. Unless you have transferred your pension capital overseas, this UK tax reform will have a significant impact on expatriates.
Coupled with this pension IHT reform, the freeze on the inheritance tax thresholds has been extended to April 2030. Again, this pulls many more families into the inheritance tax net and increases tax bills. Significant reductions to business and agricultural IHT reliefs were also announced, taking effect in April 2026.
Pensions Overseas Transfer Charge now applies to expatriates in Portugal – can you still achieve your objectives?
Since the end of October 2024, transfers from UK pensions to EU/EEA QROPS now incur the 25% Overseas Transfer Charge (OTC). The only exemptions are limited and do not apply to residents of the UK or Portugal.
You may now worry you face a difficult choice: leave your pension exposed to UK inheritance tax or pay the 25% tax for transferring it overseas. But Portugal residents may have other options to achieve their long-term objectives, with specialist advice and strategic planning.
The preferential treatment of pensions and certain investment arrangements in Portugal present an opportunity to restructure income producing assets into capital-based favourable treatment for ongoing taxation, while removing the assets from the UK. Take integrated, personalised tax and pensions advice from a cross-border specialist, and you may be very pleasantly surprised.
Non-domicile reform – inheritance tax liability will no longer be based on domicile, and benefits for returning expatriates
The UK’s adhesive domicile regime comes to an end on 5 April 2025. From 6 April, a new residence-based system will take its place, based on how long you lived in the UK, either before departing or on arriving. This will apply to British expatriates in relation to inheritance tax and to the tax liabilities of foreign nationals living in the UK.
This is a welcome reform for long-term British expatriates, many of whom have continued to be liable for UK inheritance tax on worldwide assets under the old system. The domicile regime was notoriously complex, with many people being unexpectedly deemed a UK domicile. The new system will provide more clarity, as well as limiting how long you are liable to IHT on non-UK assets to up to (and most likely to be) 10 years, rather than indefinitely.
Remember, though, that any assets you own in the UK remain liable to inheritance tax; this does not change under the new system.
Now is the time to review your estate planning to ensure you take full advantage of the new system, for example, by shedding UK assets.
If or when the time comes for you to return to the UK after living abroad for over 10 years, with extensive advance planning, you may be able to significantly reduce some UK tax liabilities, including IHT, for a number of years.
Other budget reforms – capital gains tax and stamp duty
Capital gains tax rates on investment returns increased to 18% and 24% to match real estate rates, effective from 30 October. This follows the reduction of the CGT allowance from £12,300 to £3,000 since 2023.
The business assets disposal relief rate will increase to 14% from April 2025, then to 18% a year later.
The maximum ISA contribution was frozen at £20,000 until 2030 and the surcharge on stamp duty land tax on secondary homes increased from 3% to 5%.
Protect your wealth
Act now to ensure your financial planning is as tax efficient as possible for you and your family. Take advantage of Portugal’s tax regime, which continues to offer beneficial tax planning opportunities. Moving assets out of the UK could prove very rewarding for Portuguese tax residents, as, of course, can relocating from the UK to Portugal. Take personalised cross-border tax and wealth management advice.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML.
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