The recent UK Budget includes two significant changes that could impact UK expatriates, particularly those living in Portugal. These changes affect UK Inheritance Tax (IHT) rules and the treatment of UK pensions. Here’s what you need to know.
Domicile and UK Inheritance Tax (IHT)
Currently, UK IHT applies to the worldwide assets of UK domiciles, including those in Portugal. However, this outdated and complex system is set to be replaced by a residence-based test starting in April 2025.
The New Residence Test
The new test has two key components:
Pensions and UK IHT
The treatment of UK pensions under the new IHT rules is also changing:
What This Means for UK Expatriates
These changes could significantly impact UK expatriates, particularly those with substantial assets or pension funds. It’s essential to review your financial and estate planning to ensure compliance and minimize tax liabilities.
How We Can Help
At Magnolia Properties, we collaborate with experts to provide comprehensive support for our clients. Our partner, Chase Buchanan, is a highly regulated wealth management company offering global financial solutions tailored to expatriates.
With their support, you can confidently navigate these changes and ensure your financial plans are thoroughly considered and expertly managed.
Need Further Information?
If you have questions or need assistance, please don’t hesitate to contact us. We’re here to help you make informed decisions and secure your financial future.
Domicile and UK Inheritance Tax (IHT)
Currently, UK IHT applies to the worldwide assets of UK domiciles, including those in Portugal. However, this outdated and complex system is set to be replaced by a residence-based test starting in April 2025.
The New Residence Test
The new test has two key components:
- Long-Term Residents:
- If you’ve been a UK resident for more than 10 out of the last 20 years, you’ll be classified as a long-term resident.
- You’ll be liable for 40% IHT on worldwide assets valued over £325,000.
- This applies to those who have recently moved to Portugal.
- Tapering Allowance (Tail Period):
- For those already residing in Portugal, the IHT liability will taper off over time.
- Examples:
- 10+ years in Portugal: No longer liable for UK IHT on worldwide assets, except for UK assets over £325,000.
- 8 years in Portugal: Liability lasts for 2 more years on worldwide assets.
- 4 years in Portugal: Liability lasts for 6 more years on worldwide assets.
Pensions and UK IHT
The treatment of UK pensions under the new IHT rules is also changing:
- During the Tail Period:
- Your pension fund will be included in the value of your worldwide assets for IHT purposes.
- After the Tail Period:
- Only your UK assets will be taxable, including your pension fund, if the combined total exceeds £325,000.
- Additional Tax for Beneficiaries:
- If death occurs after age 75, beneficiaries may face:
- 40% IHT on the pension fund.
- Up to 40% income tax on the amount they receive.
What This Means for UK Expatriates
These changes could significantly impact UK expatriates, particularly those with substantial assets or pension funds. It’s essential to review your financial and estate planning to ensure compliance and minimize tax liabilities.
How We Can Help
At Magnolia Properties, we collaborate with experts to provide comprehensive support for our clients. Our partner, Chase Buchanan, is a highly regulated wealth management company offering global financial solutions tailored to expatriates.
- Global Expertise: Chase Buchanan supports expatriates worldwide from their regulated European headquarters.
- Specialized Guidance: They provide expert advice on legal matters related to property, inheritance, and financial planning in Portugal.
With their support, you can confidently navigate these changes and ensure your financial plans are thoroughly considered and expertly managed.
Need Further Information?
If you have questions or need assistance, please don’t hesitate to contact us. We’re here to help you make informed decisions and secure your financial future.