If you have money sitting in a UK trust and you are planning a move to Portugal, here is the uncomfortable truth: Portugal does not really recognise trusts at all. The legal wrapper that works so neatly under English law more or less dissolves the moment you become a Portuguese tax resident, and what is left behind is a set of tax rules that can catch families completely off guard.

I have lost count of the number of clients who have arrived in the Algarve assuming their family trust is a tidy, settled part of their estate planning, only to discover that Portugal sees things very differently. This guide explains how trusts for UK expats in Portugal are actually treated, what it costs in tax, and the practical steps worth taking before you pack the removal van.

Why Portugal Treats Trusts So Differently

The trust is a creature of English common law. It rests on the idea that legal ownership and beneficial ownership can be split: a trustee holds the assets, but the beneficiaries are the ones who ultimately benefit. That split is centuries old in the UK and feels completely natural to most British families.

Portugal, like most civil law countries, has no equivalent concept. It never signed up to the Hague Convention on the law applicable to trusts, so a Portuguese court has no domestic framework for saying “this is a trust and here is how we respect it.” Instead, Portuguese tax law looks straight through the structure to the cash that actually moves. It does not ask whether something is a discretionary trust, a bare trust or a life interest trust. It simply asks a much blunter question: did money come out, and who received it?

That single shift in perspective is the root of almost every nasty surprise expats run into. In my experience working with clients across Portugal, the structure that protected and deferred tax beautifully in Britain can become a plain, taxable income stream once you are resident here.

How Portugal Taxes Trust Distributions

Portugal introduced specific rules for “fiduciary structures” (its catch-all term for trusts and similar arrangements) back in 2015, and those rules still apply in 2026. The headline points are straightforward once you strip away the jargon.

When a trust makes a distribution to a Portuguese-resident beneficiary that is not part of winding the trust up, that payment is treated as investment income, the same broad category as dividends and interest. It is taxed at a flat rate of 28%. If the trust is based in a jurisdiction Portugal has formally “blacklisted” as a tax haven, that rate jumps to 35%. A number of classic offshore trust locations such as Jersey, Guernsey and the Isle of Man sit on that blacklist, which catches a lot of expat structures.

Notice what this does. A discretionary distribution that might have been carefully managed for UK tax, perhaps using a beneficiary’s available allowances, is simply taxed at a flat 28% or 35% in Portugal regardless of how much it is or who receives it. There are no progressive bands to play with and the trust’s own UK tax position is largely irrelevant to the Portuguese charge.

What Happens When the Trust Is Wound Up

The rules change again when a trust is liquidated, revoked or otherwise brought to an end, and this is where the relationship between the people involved becomes critical.

If the person receiving the assets is the same person who originally set up the trust (the settlor), Portugal treats the wind-up as a disposal. You are taxed on the gain, calculated as the value received on termination minus the value you originally put in, again at 28% (or 35% for a blacklisted jurisdiction). In effect, you are taxed on the growth, much like a capital gain.

If the people receiving the assets are different from the settlor, for example the settlor’s children, then it is not treated as income at all. Instead it falls under Portugal’s stamp duty rules on gifts and inheritances. Stamp duty here is charged at a flat 10%, but with two important softeners. First, it only applies to assets that are located, or deemed located, in Portugal, so foreign assets passing to foreign beneficiaries can fall outside the net entirely. Second, transfers between close family, spouses, children, grandchildren, parents and grandparents, are exempt from Portuguese stamp duty altogether.

That close-family exemption is one of the genuinely good news stories in Portuguese tax, and it is worth understanding in detail because it changes the maths on a lot of estate planning.

A Worked Example

Imagine a British couple, recently resident in the Algarve, who set up a discretionary trust in Jersey years ago holding an investment portfolio worth GBP 500,000. They want to take GBP 40,000 from it to help with a house renovation.

Because Jersey is on Portugal’s blacklist, that GBP 40,000 distribution is treated as investment income and taxed at 35%, a Portuguese tax bill of roughly GBP 14,000 on a single withdrawal. Had the same trust been based somewhere not blacklisted, the rate would have been 28%, or about GBP 11,200. Either way, it is a long way from the carefully managed, allowance-friendly outcome they were used to in the UK. This is exactly the kind of figure that makes people wish they had taken advice before becoming resident rather than after.

Does NHR or the New Tax Regime Change Anything?

A common hope is that Portugal’s non-habitual resident regime, or its successor incentive for newcomers, will shelter trust income. Generally, it does not help as much as people expect. These regimes are designed mainly to give favourable treatment to certain categories of foreign-source income such as pensions and some employment income. Trust distributions taxed as investment income do not slot neatly into the protected categories, and the blacklist rules in particular tend to override the reliefs. It is always worth checking your specific situation, because the detail matters, but you should not assume a tax holiday will simply absorb the problem.

Reporting Obligations You Cannot Ignore

Tax is only half the story. As a Portuguese resident you are taxed on your worldwide income and you must declare it. Distributions from an overseas trust need to be reported on your annual Portuguese tax return, and failing to do so is not a grey area, it is undeclared foreign income. With the automatic exchange of financial information now operating between the UK, the Channel Islands and Portugal, the assumption that an offshore structure stays invisible is simply out of date. The Portuguese tax authority increasingly receives this data directly.

None of this means trusts are bad or that you have done anything wrong by having one. It means the reporting needs to be done properly, and that is a conversation to have with an adviser who understands both sides of the border.

What to Sort Out Before You Move

The single most valuable thing I can tell anyone with a trust is that timing is everything. Almost every option you have shrinks the day you become Portuguese tax resident, so the planning window is before the move, not after.

Things genuinely worth reviewing in advance include:

• Whether the trust still serves a purpose. Some trusts were set up for UK inheritance tax reasons that may no longer apply once you are resident elsewhere. If the original goal has gone, the structure may be adding cost and complexity for nothing.
• Where the trust is based. A trust sitting in a blacklisted jurisdiction faces the 35% rate. Understanding that before you move lets you weigh up whether restructuring beforehand makes sense.
• The order of events. A distribution made while you are still UK-resident is governed by UK rules, not Portuguese ones. Sequencing matters enormously and is far easier to manage from the UK side.
• Alternative structures. For many expats, a properly arranged investment bond or other Portugal-compliant wrapper achieves the goals a trust used to, but in a form Portugal recognises and taxes more gently.

This is also a good moment to revisit your will and overall estate plan. Because Portugal applies forced heirship rules to residents, and because the trust may not behave as you assume, the two need to be looked at together rather than in isolation.

Frequently Asked Questions

Will I be taxed in Portugal just for being a beneficiary of a UK trust?

No. Simply being named as a beneficiary does not trigger Portuguese tax. The charge arises when money is actually distributed to you, or when the trust is wound up. Until cash or assets move, there is generally nothing to declare.

Are distributions from my UK trust taxed twice, in both the UK and Portugal?

It depends on the structure and the type of payment, but the UK-Portugal double tax treaty and Portugal’s domestic rules are designed to relieve genuine double taxation in most cases. The risk is less about being taxed twice and more about facing an unexpectedly high single Portuguese charge. This is exactly the area where personalised advice pays for itself.

Does the close-family stamp duty exemption mean I can pass trust assets to my children tax-free?

Where a trust is wound up and assets pass to close family such as children or a spouse, the 10% Portuguese stamp duty is exempt. However, only Portuguese-situated assets fall within stamp duty in the first place, and the UK side of the picture still needs checking. Exempt from one tax does not always mean exempt from all of them.

Should I just close my trust before moving to Portugal?

Sometimes that is the right answer, but not always, and never as a knee-jerk reaction. Collapsing a trust can trigger UK tax charges of its own and may undo protections you still need. The decision should follow a proper review of why the trust exists and what you want it to do, ideally well before you become resident.

What to Do Next

The key takeaways are simple: Portugal does not recognise trusts the way the UK does, distributions are typically taxed at 28% or 35%, and your best planning options exist before you become resident rather than after. A trust that worked perfectly in Britain is not automatically a problem, but it does need a fresh pair of eyes once Portugal enters the picture.

If you’d like to discuss how this affects your personal situation, get in touch with our team. We specialise in helping UK expats in Portugal make the most of their pensions, investments and estate planning across borders.

Matthew Renier is a Chartered Financial Adviser at Arthur Browns Wealth Management, based in the Algarve, Portugal. He has more than 20 years of experience helping British expats manage their pensions and financial planning across borders. This article is general information, not personal advice, and tax treatment depends on your individual circumstances and may change.

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