Facing new UK inheritance tax rules in 2027, more families are planning a move to Portugal for its tax-friendly inheritance laws and sunny lifestyle. Discover why Portugal is the top choice for wealth planning and securing your legacy.
With major changes to UK inheritance laws on the horizon, families are rethinking how—and where—they secure their financial legacy. From April 2027, unused pension pots in the UK will become liable to Inheritance Tax of up to 40%, on top of Income Tax applied to any remaining funds. This pivotal change is driving high-net-worth individuals and families to reassess their wealth planning strategies, and increasingly, Portugal is emerging as a prime destination.
The Upcoming UK Inheritance Tax Shake-up
For years, UK residents have benefitted from relatively favorable treatment of unused pension funds, which could often be passed to beneficiaries tax-free. The incoming regulations will subject these pension assets to the full force of Inheritance Tax (IHT), slashing the value of inheritances and adding new layers of complexity to wealth management. Not only will up to 40% IHT be levied, but any recipients could also face additional Income Tax on what they receive.
Given the impact on generational wealth transfer, tax and wealth planning authorities are urging families to plan ahead and explore alternatives to the UK’s increasingly burdensome tax regime.
Why Portugal Stands Out
Many UK citizens, especially those considering relocation, are turning their focus to Portugal. The reasoning is twofold: substantial tax advantages and a notably attractive lifestyle.
No Inheritance Tax for Direct Heirs
Portugal abolished Inheritance Tax in 2004 for direct heirs (children, parents, and spouses). Now, beneficiaries in these categories pay no tax on inherited assets. Only siblings, distant relatives, and non-relatives pay a flat 10% stamp duty, which is still significantly lower than what the UK imposes.
Sun, Sea, and Lifestyle Benefits
For many, the financial advantages are matched by lifestyle improvements. Portugal’s warm climate, especially along the Algarve, offers more than double the annual sunshine of Scotland, transforming daily life for new arrivals. Scots, for example, are increasingly swapping Edinburgh’s grey skies and high costs for the Algarve’s sun-soaked shores.
“People are looking for a better quality of life, more flexible working options, and in some cases, a smart place to invest or retire,” says local wealth advisors. Anecdotal reports and advisory data confirm a surge in inquiries from across the UK.
Favourable Taxation Schemes for New Residents
Portugal has developed several tax regimes to attract foreign residents, including the Non-Habitual Residency (NHR) scheme, which can provide significant income tax reductions for qualifying new arrivals for up to ten years. This makes Portugal even more attractive for retirees and high earners seeking to shield assets and maximize inheritances.
Key Wealth Planning Considerations
Specialist tax advisors such as Forvis Mazars recommend that families consider medium- to long-term strategies when planning wealth relocation. Several key points must be addressed:
- Residency rules: To benefit, future expats must establish genuine residency in Portugal and understand both Portuguese and UK legal requirements.
- Anti-avoidance provisions: Planning needs to be robust and compliant with both national and international regulations.
- Double tax treaties: Understanding the UK-Portugal double tax treaty is essential for structuring assets and income streams.
- UK’s temporary non-residence regime: The timing of asset sales, particularly for properties and businesses, can have significant tax implications.
Timing Is Everything
The tax experts emphasize the importance of acting before April 2027 to take full advantage of current laws and optimize tax outcomes. Families considering property sales or business exits should carefully plan the timing of these transactions to minimize exposure to UK taxes and maximize the benefits of Portugal’s welcoming tax environment.
The Bottom Line
With UK inheritance tax rules tightening, Portugal stands out for wealth creators and retirees aiming to secure and pass on their financial legacies. The absence of inheritance tax for direct heirs, coupled with lifestyle perks, makes the move not only financially sensible but also deeply rewarding at a personal level.
If you’re considering your own future, or that of your family, the time to act is now. Consulting with international tax and wealth advisors is essential to navigate residency requirements and make the most of Portugal’s favorable tax regimes before the UK rules shift in 2027.
