In the recent UK budget, two announcements were made that could have profound implications for British expats.
1. Domicile and UK Inheritance Tax (IHT)
Currently IHT is payable on the value of your worldwide assets (including Portugal) if you are a UK domicile. This is an outdated and complex principle that is about to be abolished. From April 2025, the domicile criterion will be replaced by a residence criterion.
The new criteria is divided into two parts:
- If you have been resident in the UK for more than 10 of the last 20 years, you will be classified as a long-term resident and will be subject to IHT on your worldwide assets. Tax will be 40% on asset value over £325,000. This applies to those who have recently arrived in Portugal
- The liability could last for 10 years after departure from the UK, but there is a tapering allowance called a tail. This applies to everyone currently residing in Portugal. Some examples:
- Tax resident in Portugal for 10 or more years - no longer subject to UK inheritance tax except on UK assets if they are valued at more than £325,000
- Tax resident in Portugal for 8 years - liability will last for another 2 years on your worldwide assets
- Tax resident in Portugal for 4 years - liability will last for another 6 years on your worldwide assets
2. Pensions and UK IHT
Currently, there is no IHT payable on UK pension funds in the event of death. Everything changes! From April 2027, 40% IHT will be deducted from UK pension funds, even if you are living outside the UK.
- During the tail period, your pension fund will be included in your worldwide asset value
- After the tail has expired, only YOUR UK assets will be taxable and this obviously includes the pension value as long as the combined total is over £325,000
- If death occurs after age 75, not only will 40% IHT be payable on the pension fund, but UK beneficiaries could potentially pay income tax on the amount they receive. This amount could also be 40%!
These two new announcements on the UK's October 2024 budget are likely to have a significant impact for UK expats. If you require further information, please contact Robert Webb at Chase Buchanan, who is an expert in this area and can assist you.
Robert Webb - Private Weath Manager - robert.webb@chasebuchanan.com - +351 913 711 370 - chasebuchanan.com
Martínez-Echevarría & Ferreira Law Firm
