If you moved to Portugal hoping to leave UK inheritance tax behind, the news from April 2025 changed the game completely. The old domicile rules — the ones that let long-term expats eventually escape UK IHT — are gone. Now it’s all about how many years you’ve been a tax resident outside the UK.

For British expats living in the Algarve, Lisbon, the Silver Coast or anywhere else in Portugal, this is one of the most significant tax changes in a generation. In my experience advising clients across Portugal, very few people have grasped what the new UK inheritance tax regime actually means for their estate, their property in the UK, and the assets they pass to their children. This guide walks you through it in plain English.

What Actually Changed in April 2025

Until 5 April 2025, the UK’s inheritance tax (IHT) system was based on the concept of domicile. Domicile was a complicated, often subjective test rooted in your “permanent home” and your intentions. A UK-domiciled person was exposed to UK IHT on their worldwide assets. A non-UK domiciled person was only exposed on UK-situated assets.

Long-standing British expats in Portugal could, with the right planning, claim a domicile of choice in Portugal and escape UK IHT on their non-UK assets. It took years of evidence — selling UK property, cutting UK ties, demonstrating an intention to remain abroad permanently — but it was achievable.

From 6 April 2025, that system was scrapped. Domicile no longer matters for IHT purposes. Instead, the UK now uses a residence-based test. Whether your worldwide estate is in scope for UK IHT depends on a simple question: have you been a UK tax resident for at least 10 of the previous 20 tax years?

If yes, you’re a “long-term resident” and your worldwide assets are exposed to UK IHT. If no, only your UK-situated assets are exposed. You can read the official guidance directly from HMRC’s policy paper on the non-dom reform.

How the New 10-Year Rule Works for UK Expats in Portugal

The new test is mechanical, which is actually good news — it removes the subjective “intentions” argument that made domicile so messy. Here’s how it works in practice.

If you have been UK resident for 10 or more of the previous 20 tax years immediately before the tax year of death (or the relevant gift), you are a long-term resident. Your worldwide estate is in scope for UK IHT at 40% above the available nil-rate bands.

Once you leave the UK and become non-resident, you start a “tail”. The tail keeps you within scope of UK IHT on your worldwide assets for a number of years after departure, depending on how long you were UK resident before leaving:

• Resident for 10–13 of the previous 20 years: 3-year tail after leaving
• Resident for 14–19 of the previous 20 years: tail extends progressively
• Resident for 20+ consecutive years: maximum 10-year tail before falling out of scope

For most British expats who lived their whole working life in the UK and then moved to Portugal, you’re looking at a 10-year tail. Only after a full decade as a non-UK resident does your worldwide estate fall outside UK IHT.

It’s worth noting that UK-situated assets — UK property, UK bank accounts, UK-listed shares held directly — remain within UK IHT regardless of your residence status. That rule has not changed.

What This Means for Your Estate If You’ve Just Moved to Portugal

If you’ve recently moved from the UK to Portugal, brace yourself: you are still fully exposed to UK IHT on your worldwide estate for at least the next 10 years.

That includes:

• Your Portuguese home, even though you live in it and it’s your only property
• Investment accounts held in Portugal, Luxembourg, Ireland or anywhere else
• Crypto, business interests, life policies not in trust, jewellery, vehicles
• Pensions held outside the UK (though most UK pensions remain outside IHT for now — see below)

This is a significant shift. Under the old domicile rules, a determined expat could potentially argue they had acquired Portuguese domicile much sooner. Under the new rules, it’s a hard 10-year wait, full stop.

The Pension Wrinkle You Need to Know About

From 6 April 2027, unused UK pension funds and death benefits will fall within the IHT net. This was announced alongside the residence-based reform and is a separate but related change.

For long-term British expats in Portugal, this matters enormously. If you have a substantial UK SIPP or defined contribution pension and were planning to pass it to your children tax-efficiently on death, the playbook changes from April 2027.

The good news is that pensions remain outside IHT until that date, giving you a short window to consider whether drawdown, partial encashment under Portuguese tax rates (which are often more favourable than UK IHT), or other restructuring makes sense. The decision is highly individual and depends on your age, health, the size of the pot, and your beneficiaries’ tax position.

The FCA’s pension guidance is a useful starting point if you want to understand the UK side, but the real planning sits in how those withdrawals interact with the Portuguese tax system.

What Portuguese Inheritance Rules Add to the Picture

Portugal does not have a true inheritance tax, but it does levy stamp duty (Imposto do Selo) at 10% on transfers to anyone who is not a direct relative. Spouses, children, parents and grandchildren are exempt. Everyone else — siblings, nieces, nephews, friends, unmarried partners — pays 10% stamp duty on the value of any Portugal-situated assets they inherit.

In practice, this means a typical British expat passing assets to their spouse and children pays no Portuguese tax on death, but might still face significant UK IHT under the new residence rules. The two systems do not interact cleanly. There is no double tax treaty for inheritance between the UK and Portugal, which means you cannot offset Portuguese stamp duty against UK IHT (or vice versa) in most situations.

This makes cross-border estate planning more important than ever for expats. The default outcome is rarely the most efficient one.

Practical Steps to Reduce Your UK IHT Exposure

Once you understand where you sit, there are real things you can do. Here are the strategies I most commonly walk clients through.

1. Use your nil-rate bands fully. The standard nil-rate band of £325,000 plus the residence nil-rate band of £175,000 (where applicable) still apply. A married couple can effectively pass £1 million between them before IHT bites. Make sure your wills are structured to use both bands properly. A surprising number of expat wills I review have inadvertently wasted one spouse’s nil-rate band.

2. Make lifetime gifts and survive seven years. Outright gifts (potentially exempt transfers, or PETs) drop out of your estate after seven years. The annual exemption of £3,000 per donor, the small gifts exemption, and gifts out of normal expenditure from income are also valuable tools. None of this has changed in the 2025 reform.

3. Consider trusts carefully. Trusts remain useful but the rules around them have tightened. Settlor-interested trusts and certain offshore structures may now be treated less favourably under the new regime. This is where bespoke advice matters most.

4. Review life insurance. A whole-of-life policy written in trust can provide the liquidity to pay a UK IHT bill without forcing the sale of family property. For long-term residents whose estate exceeds the nil-rate bands, this is often the cleanest solution.

5. Plan around the 10-year clock. If you are close to falling out of UK IHT scope, the timing of gifts, asset sales, and even your own demise (gallows humour, but real) starts to matter financially. Some clients deliberately delay liquidity events until they are clear of the tail.

Common Mistakes Expats Make

I see the same errors again and again. Here are the most expensive ones.

Assuming you’re “out of UK IHT” because you live in Portugal. The new rules make this assumption catastrophic for anyone within their 10-year tail.

Holding a UK property “just in case.” A UK-situated property remains in UK IHT scope forever, regardless of your residence. If you’ve genuinely left the UK, holding that property has a real ongoing cost.

Using a UK-only will. Portuguese law applies to your assets in Portugal unless you make a valid election under the EU Succession Regulation. Without proper cross-border wills, your estate can end up split between two legal systems with conflicting outcomes.

Forgetting about overseas children. If your beneficiaries are themselves outside the UK, the tax treatment of receipts can differ. Portuguese-resident children receive inheritances differently from UK-resident ones.

Frequently Asked Questions

Does the new residence-based test apply to me if I moved to Portugal years ago?

Yes. The test looks at the previous 20 tax years before death or transfer. If you have been UK-resident for 10 or more of those years, you are caught. Long-standing expats who left the UK more than 10 full tax years ago and remained non-resident throughout are now generally outside UK IHT on their non-UK assets.

Do I still need to worry about domicile at all?

Domicile is no longer relevant for inheritance tax. However, it can still matter for some other UK tax purposes and for succession law in certain circumstances. The simpler residence test now drives IHT outcomes.

Will my UK property always be subject to UK IHT?

Yes. UK-situated real estate is within UK IHT regardless of the owner’s residence or domicile. This has not changed and is unlikely to.

Can I escape UK IHT by giving away my assets before moving?

Lifetime gifts can reduce your exposure, but the seven-year rule on PETs still applies, and gifts with reservation of benefit are caught. Doing this in the months before a move requires careful planning and is rarely a complete solution by itself.

How does Portuguese stamp duty interact with UK IHT?

There is no UK–Portugal inheritance treaty. Portuguese stamp duty applies at 10% on Portugal-situated assets passing to non-direct relatives, while UK IHT applies at 40% on assets within UK scope. You generally cannot credit one against the other, so cross-border planning needs to consider both systems independently.

What to Do Next

The new residence-based IHT regime is the biggest change to UK estate tax in decades, and it has clear winners and losers among British expats in Portugal. Long-standing expats benefit from finally having a clean exit; recent movers face a hard 10-year wait that did not exist under the old rules. Either way, a current cross-border estate plan is no longer optional.

If you’d like to discuss how the 2025 IHT changes affect 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 estates across both jurisdictions.

Matthew Renier is a Chartered Financial Adviser at Arthur Browns Wealth Management, based in the Algarve, Portugal. He has over 25 years of experience helping British expats manage their pensions and financial planning across borders.

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