The recent UK Labour Budget introduces several tax measures that will significantly impact UK nationals. While some of these changes are still awaiting final legislation, the new provisions already hold implications for financial planning, pension withdrawals, and wealth transfer.
One of the most impactful changes is the 40% inheritance tax on unused pension funds upon death, scheduled to take effect from April 2027.
For affluent Brits, this could complicate the way they pass on their wealth to family members, increasing the importance of efficient planning.
With the new tax measures, many may need to review their plans for pension use and inheritance to avoid unexpected tax liabilities on funds they hope to pass down.
Already on the rise, these recent UK tax changes are also likely to accelerate the exodus of affluent British families, individuals, and entrepreneurs to Portugal.
The Algarve, already Portugal's top destination for British expats—who now make up the second-largest expat group after Brazilians—has seen a remarkable 34.6% increase in British residents in recent years, according to SEF (Serviço de Estrangeiros e Fronteiras). With its stunning coastline, and thriving expat community, it's no surprise that more and more are now setting their sights on the region.
For British expats already in Portugal, the Labour Budget also brings adjustments to the Overseas Transfer Charge, adding complexity to the payment of UK pensions.
These changes force clients to weigh the volatility of currency fluctuations on pension income against a 25% tax on pensions transferred out of the UK. Navigating the complexities of these expat-specific tax changes and Budget updates is essential for long-term wealth management.
Paul Stannard is the founder of Portugal Pathways, which specialises in navigating Golden Visa residency by investment, NHR tax status, which offers much lower tax for UK expats, luxury real estate, setting up businesses in Portugal, and lifestyle and other investment opportunities.
He explains: “In the last few days, we have seen an influx of affluent UK expats in Portugal and in the UK requesting meetings to expedite and accelerate moving their income and assets to European-based investment structures such as insurance bonds that are very tax efficient in Portugal as fears grow about the cost of capital gains for entrepreneurs and increases in inheritance tax.’’
Many expats in Portugal who benefit from the country’s Non-Habitual Residency (NHR) tax status are now opting to draw down their UK pensions at a 10% rate, aiming to pre-empt future inheritance tax issues in the UK through fears of further taxation.
British entrepreneurs and value creators are also notably affected by recent Budget adjustments. For asset disposals on or after October 30, 2024, capital gains tax has risen from 10% and 20% for assets other than residential property or carried interest to 18% and 24%, respectively.
For affluent UK families and business owners impacted by these adjustments, there remains a brief window to secure the Portuguese NHR tax status before it closes to new entrants at the year’s end.
While the new regime – dubbed NHR 2.0 tax regime - is expected in 2025, it won’t offer the same low-tax benefits for UK pensions and aims, instead, to attract entrepreneurs and investors in innovative and highly skilled professions.
With the Labour Budget changes and Portugal’s welcoming environment for affluent families, entrepreneurs, skilled professionals, and business owners, a perfect storm is brewing. The Algarve, Portugal's top region, may soon see an even greater influx of British expats bringing value, investment and productivity.
About Portugal Pathways
Portugal Pathways provides expert guidance on luxury property, wealth management, residency by investment (Golden Visa), tax optimisation, private healthcare, and bespoke relocation solutions to enhance your lifestyle and investments in Portugal.
