UK Inheritance Tax Reforms Drive Wealthy Britons to Portugal’s Tax Haven

Sweeping changes to the UK’s inheritance tax (IHT) system, set to take effect from April 2027, are prompting a wave of affluent Britons to consider relocating to Portugal, drawn by its favorable tax regime and lifestyle advantages. The UK Treasury’s decision to include unspent pension funds in IHT calculations is expected to significantly increase tax liabilities for families, spurring interest in tax-efficient jurisdictions.

Under the new rules, unspent pension pots will be subject to a 40% IHT rate upon the death of the pension holder, in addition to income tax for heirs if the deceased was over 75. This marks a departure from the current system, where such funds are exempt from IHT, incurring only income tax in certain cases. The Treasury projects these changes will generate £1 billion annually by 2030, but for high-net-worth individuals (HNWIs), the reforms are a catalyst for reevaluating their financial strategies.

Broader IHT reforms, effective from April 2025, will introduce a residence-based system, applying the 40% IHT rate to worldwide assets for individuals who have been UK tax residents for at least 10 of the past 20 years. However, Britons who establish non-residency for 10 years or more may exempt their non-UK assets—such as property, savings, and investments—from IHT, creating a strong incentive to relocate.

Portugal has emerged as a prime destination for those seeking to mitigate these tax burdens. The country’s Non-Habitual Residency (NHR) program, replaced by the NHR 2.0 scheme in 2025, offers a 20% flat tax rate on Portuguese-sourced income and a 0% tax on foreign passive income, including dividends and capital gains. These benefits, coupled with Portugal’s lower cost of living, mild climate, and high quality of life, make it an attractive haven for retirees and HNWIs.

Portugal Pathways, an organization specializing in expatriate investment and tax planning, reports growing inquiries from Britons exploring relocation. “The UK’s tax changes are pushing affluent individuals to seek jurisdictions that offer both financial security and lifestyle benefits,” a spokesperson said. “Portugal’s stable environment and tailored tax incentives are hard to ignore.”

Effective cross-border tax and wealth management is critical for navigating these complex regulations. Experts emphasize the need for strategic planning to optimize tax liabilities and ensure compliance, particularly for those considering permanent relocation.

As the UK tightens its fiscal policies, Portugal’s allure as a tax-friendly destination is expected to grow, drawing Britons eager to preserve their wealth while enjoying a sunnier, more relaxed lifestyle.

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