Your Property Specialists
Email Address Share
  1. Home
  2. Blog

Which tax considerations should UK citizens in Portugal be aware of?

UK citizens residing in Portugal must stay informed about several critical tax considerations stemming from recent legislative changes in the UK. The shift to assessing inheritance tax (IHT) based on residency will impact many expats living in Portugal, where understanding local regulations is vital for comprehensive financial planning. Those who have been residents in the UK for over 10 years could find their worldwide assets subject to a hefty 40% tax beyond the £325,000 threshold. This new criterion could impose significant liabilities on expatriates, affecting their retirement and estate planning strategies. Moreover, the expected inclusion of UK pension funds in the IHT landscape can add another layer of complexity, requiring citizens to revisit their financial arrangements. Expats should routinely assess their investment portfolios and residence status to align closely with changing tax obligations. Legal advice may be indispensable in crafting robust contingency plans. Familiarity with Portugal's tax laws is equally important, as understanding local regulations can mitigate cross-border tax issues. Communication with tax professionals and financial advisors can provide insights into better estate management. As financial climates shift, reassessing your strategy proactively is key to securing your investments. If you're looking for guidance tailored to your specific situation, Robert Webb at Chase Buchanan is ready to assist.

Tuesday, 10 December 2024 - Fiscal
Which tax considerations should UK citizens in Portugal be aware of?
Open Gallery
Budget

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 This is an outdated and complex principle that is about to be abolished.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:

  1. 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
  2. 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.

  1. During the tail period, your pension fund will be included in your worldwide asset value
  2. 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
  3. 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

contact us   +