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British families living in Portugal believe they have solved the estate planning puzzle:
Estate planning does not work that way across borders.
The gap is not about having two wills. It is about understanding that two countries have two completely different rules about:
Since April 2025, the rules have changed again. UK inheritance tax is now purely residence-based, which means many British families in Portugal who thought they were outside the UK IHT net are actually inside it.
This article exists to explain the full estate planning picture for British families in Portugal, from understanding what you can leave to who, through to ensuring your family does not waste years in probate or pay tax that should never have been due.
Until April 2025, UK inheritance tax was domicile-based. You were subject to UK IHT if you were domiciled in the UK, which (roughly) meant the UK was your permanent home. Expats living abroad for many years could gradually change their domicile to their new country, which would then remove worldwide assets from the UK IHT net.
From April 2025, everything is residence-based.
You are now subject to UK inheritance tax on your worldwide assets if you are a "long-term resident," defined as someone who has been UK tax resident for 10 of the previous 20 tax years.
For a British family living in Portugal, this creates a new timeline.
If you left the UK in 2015 and have been living in Portugal for the past 10 years, by April 2025 you will be a long-term resident under the new rules. This means your worldwide estate, including your Portuguese properties, Portuguese investments, bank accounts and even life assurance policies, are all potentially subject to 40% UK inheritance tax.
The nil rate band (the amount you can pass to beneficiaries free of tax) remains frozen at GBP 325,000. The residence nil rate band (relief if you pass a residential property to direct descendants) adds up to GBP 175,000. For a married couple, this provides a combined exemption of GBP 1,000,000. But for many British families in Portugal with property worth EUR 500,000 or more and investments of GBP 500,000 plus, the IHT bill can easily exceed GBP 200,000.
Under the previous domicile-based system, changing domicile could eventually remove you from UK IHT. Under the new residence-based system, that option no longer exists once you hit the 10-year threshold. The only way to escape UK IHT is to not be UK resident on the day you die.
For families planning to stay in Portugal long-term, this is the starting point for all estate planning decisions.
Portugal has one of the most restrictive forced heirship systems in Europe.
Your direct descendants (children) have a legal right to inherit a minimum share of your estate. That right exists regardless of your wishes and cannot be overridden by your will.
The structure is as follows:
Note the critical detail: Portuguese law measures the "forced share" on your entire estate, not just your Portuguese assets. If you have a Portuguese home worth EUR 500,000 and GBP 500,000 in UK investments, your forced heirs can claim their percentage of the total.
This is not a default rule that can be changed by will. It is a legal right that cannot be removed.
Many British families moving to Portugal with older children assume they can write a Portuguese will leaving everything to their spouse or favoured child. They then discover, often after death, that the other children have legal rights that override the will and force a redistribution of assets.
The practical consequence is that the forced heirship rules in Portugal limit your freedom to dispose of your own estate. You must always reserve 50% for your direct descendants (if you have them), regardless of your wishes.
For blended families, this creates major planning challenges. If you remarry in Portugal and have children from both relationships, all children (regardless of their relationship to your spouse) have forced heirship rights. Many British families in this position have attempted to avoid forced heirship by using UK trusts or ownership structures, but Portuguese courts increasingly challenge these arrangements and apply Portuguese law regardless of formal ownership.
Before Brussels IV, estate law was based on nationality. Your estate was probated according to the law of the country where you were a national. For a British citizen living in Portugal, this created an immediate conflict: should your estate be distributed under UK or Portuguese law?
The EU Succession Regulation (Brussels IV, which the UK incorporated into domestic law before Brexit) allows you to make an explicit choice.
You can elect for either UK law or Portuguese law to govern your entire estate. The election must be made in your will, in writing, and must be clear and unambiguous. Without an explicit election, the regulation applies a default rule: the law of the country where you were resident at the time of death.
For most British families living in Portugal, the choice comes down to this:
The choice is not simple. A family with a large estate, multiple properties and children from previous relationships will often benefit from UK law (which gives complete freedom of disposition) but wants Portuguese law's lower inheritance tax rates and faster administration.
Many families attempt to make this choice without explicitly stating it in their will. This is a critical mistake. If your will is silent on the choice, the default rule applies (the law of your residence at death, which for families living in Portugal means Portuguese law). Forced heirship then applies, potentially overriding your wishes entirely.
The solution is to make an explicit, unambiguous election in your will. This typically requires professional legal advice in both Portugal and the UK to ensure the election is valid and achieves your objectives.
Most British families living in Portugal have two wills:
The assumption is that each will applies in its respective country.
The problem is that the wills may conflict, particularly if they make different elections under Brussels IV or contain conflicting instructions about the same assets.
Example: Your UK will states that your estate will be distributed according to UK law (no forced heirship), with your spouse inheriting everything. Your Portuguese will states that your estate will be distributed according to Portuguese law, with your children inheriting their forced share. Your executors are now faced with a direct conflict. Is your estate subject to forced heirship or not? Which will takes precedence?
Without an explicit election in both wills, the default rule applies: the law of your residence at death. For families living in Portugal, this means Portuguese law takes precedence, overriding the UK will entirely.
The solution is to coordinate your wills carefully:
Many families attempt this coordination without professional advice, resulting in wills that are technically valid but create ambiguity and potential conflict. This is exactly the situation that leads to probate disputes and delays after death.
The cost of having both wills coordinated by a cross-border law firm while you are alive is modest compared to the cost of having executors and beneficiaries litigate over conflicting wills after you die.
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Life assurance bonds are one of the most powerful and underused estate planning tools available to British families in Portugal.
A life assurance bond is a life insurance policy written in trust. It provides a lump sum at death to named beneficiaries, outside your estate. This achieves several objectives simultaneously:
Example: You own a Portuguese home worth EUR 800,000 and have GBP 600,000 in investments. If you die as a UK long-term resident, your estate is subject to 40% UK IHT. The tax bill would be approximately GBP 320,000, which could force your family to sell the Portuguese property to pay the tax.
If instead you arrange a life assurance bond for GBP 200,000 written in trust, the bond pays directly to your beneficiaries at death, outside your estate. Your taxable estate is reduced to GBP 400,000 (the EUR 800,000 home is now the only major asset triggering UK IHT, assuming it qualifies for the residence nil rate band). The IHT bill drops dramatically, and the bond proceeds provide your family with immediate cash to manage their own situation without forcing a property sale.
For British families in Portugal, life assurance bonds also have a Portuguese angle. The Portuguese "succession bonus" allows beneficiaries to deduct GBP 500 from the gross value of a life assurance benefit before calculating Portuguese inheritance tax. This is a small relief, but it reinforces the tax efficiency of using bonds.
The key requirement is that the bond must be written in trust correctly. If the bond is written in your personal name and simply left to beneficiaries in your will, it becomes part of your estate and is subject to both UK and Portuguese inheritance rules. If it is written in trust to named beneficiaries from the outset, it falls outside the estate entirely and becomes a direct payment to the beneficiaries.
Portuguese inheritance tax and UK inheritance tax are separate taxes that apply to different people and are calculated differently.
Portugal taxes inheritance on the basis of who receives the inheritance, not on the basis of the estate as a whole. The rates are:
Portuguese inheritance tax is calculated on the net value of what each beneficiary receives, not the gross estate. This is significantly more favourable than UK IHT, which is calculated on the gross estate with a single exemption.
Example: An estate of EUR 500,000 left to two children. Under Portuguese law, each child receives EUR 250,000 and pays 10% tax on their share: EUR 25,000 each. Total tax: EUR 50,000. Under UK law, if the estate was UK-based and subject to IHT, the tax would be 40% on amounts above GBP 325,000, which would be substantially more.
However, there is a critical point: **Portuguese inheritance tax is 0% for direct heirs if they inherit under Portuguese succession law**. Wait, that does not match the 10% rate just mentioned. The discrepancy exists because Portugal distinguishes between inheritance tax (which is 0% for direct heirs) and stamp duty on inheritance (which is 10% for direct heirs and higher for others).
In practice, for families inheriting under Portuguese succession law, direct heirs pay no inheritance tax but may pay 10% stamp duty (Imposto do Selo sobre Sucessões) on their inheritance. For practical purposes, direct heirs pay approximately 10% of what they inherit, which is lower than UK IHT at 40%.
UK inheritance tax applies at 40% (or 36% if more than 10% of the net estate goes to charity) on the value of the estate above the nil rate band (GBP 325,000 for 2025/26). The tax is calculated on the gross estate, not on what individual beneficiaries receive.
Example: An estate of GBP 1,000,000 subject to UK IHT. Tax is 40% on GBP 675,000 (GBP 1,000,000 minus GBP 325,000 nil rate band) = GBP 270,000.
The critical difference is that UK IHT is a single tax on the entire estate, whereas Portuguese inheritance tax is calculated on each beneficiary's share. For families with direct descendants, Portuguese inheritance tax is significantly lower.
The question naturally arises: if a British family living in Portugal dies, do they pay both Portuguese inheritance tax and UK IHT?
The answer depends on which country's law applies to the estate (determined by the Brussels IV election in your will):
There is no double taxation if the election is clear. But if the election is ambiguous or missing, executors may face demands for both taxes, which creates liability for the heirs.
This is why the Brussels IV election in your will is so critical. It determines not only which country's succession law applies but also which country's inheritance tax applies.
Some British families in Portugal attempt to avoid inheritance tax by transferring property or other assets into trusts or corporate structures before death. The logic is that if the assets are not in their personal name, they are not part of their estate and are not subject to inheritance tax.
This strategy almost never works.
Under both UK and Portuguese law, the person who benefits from the property or asset is treated as the owner for inheritance tax purposes, regardless of the formal legal structure. If you create a trust and retain the right to benefit from it (for example, continuing to live in a property held in trust), the entire value of the trust estate is included in your inheritance tax calculation.
Example: You transfer your Portuguese home (worth EUR 500,000) into a Portuguese company with your name as shareholder. You believe this removes it from your estate because you do not technically own the property anymore. In reality, you own the company shares, which are worth EUR 500,000. The full value remains part of your estate. Additionally, the transfer of property into a company may trigger Portuguese wealth tax (which applies to property owned directly or beneficially) and stamp duty on the company transfer.
The same applies to UK trusts. If you transfer UK assets into a UK trust and retain a life interest (the right to use or benefit from the assets), the entire value of the trust is included in your UK estate for IHT purposes. Trust structures can provide some inheritance tax benefits in specific scenarios (for example, discretionary trusts that pay out to beneficiaries at specific milestones), but creating a trust simply to hold assets does not remove them from the inheritance tax net.
In fact, the property ownership structures that look like tax planning often trigger unexpected tax consequences in Portugal, where the approach to beneficial ownership is stricter than in the UK.
The best approach to inheritance tax planning is not to hide assets in structures but to reduce the estate through careful use of allowed exemptions (such as spousal transfers, life assurance bonds and potentially planned gifting before death). This is legal, transparent and respected by both tax authorities.
One of the most overlooked estate planning tools is lifetime gifting.
Under UK law, gifts you make during your lifetime are potentially exempt transfers (PETs). If you survive seven years after making the gift, the gift falls completely out of your estate and is not subject to UK IHT. If you die within seven years, the gift is brought back into your estate at its value at the time of gift (not the current value), and IHT is charged at 40% on amounts above the nil rate band, with a taper relief for gifts made more than three years before death.
Under Portuguese law, gifts made during lifetime are not subject to inheritance tax (though they may be subject to other gift taxes in some cases). Once a gift is made and you no longer retain any benefit from the property, it is out of your estate entirely.
For British families in Portugal, this creates a planning opportunity. You can reduce your taxable estate by making planned gifts to children, grandchildren or other beneficiaries during your lifetime. The amount you give is no longer subject to inheritance tax (provided you survive seven years in the UK context).
Example: You have an estate of GBP 1,200,000. The taxable amount subject to UK IHT would normally be GBP 875,000 (GBP 1,200,000 minus GBP 325,000 nil rate band), incurring tax of GBP 350,000.
If over the next few years you gift GBP 200,000 to your children (for university fees, help with a property purchase, or just to distribute wealth), you reduce your estate to GBP 1,000,000. If you survive seven years, the gifts fall out of your estate entirely and your taxable estate is now GBP 675,000 (GBP 1,000,000 minus GBP 325,000). The tax bill drops to GBP 270,000 a saving of GBP 80,000.
For families wanting to begin the process of distributing their estate and reducing inheritance tax, lifetime gifting is one of the clearest levers available. But it must be planned carefully:
Most families do not begin gifting until it becomes urgent (usually after a health scare), which is too late to receive the full benefit of the seven-year rule. Planning gifting early gives you the maximum window to reduce your estate tax-efficiently.
The best estate plan in the world is only as good as the people who execute it.
For British families in Portugal with assets in both countries, you typically need:
Many families nominate their spouse as executor everywhere, which works until the spouse also dies. Other families nominate children, who may live abroad and have no experience of the Portuguese legal system. Some families attempt to use the same executor in both countries, which can create conflicts of interest and delays.
The best approach is to nominate professional executors or trustees in each country. These might be:
The cost of professional executors is typically 1-2% of the estate value. For families with assets of GBP 500,000 or more, this cost (GBP 5,000 to GBP 10,000) is typically far less than the delays and mistakes that occur when family members attempt to navigate the probate process without professional help.
At a minimum, ensure your executors understand:
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For a British family living in Portugal, estate planning works best when it follows a logical sequence:
Map how long you have been UK resident and whether you are a long-term resident under the April 2025 rules. If you are, assume all your worldwide assets are subject to UK IHT at 40% unless specifically exempted.
List all assets (Portugal, UK and other jurisdictions), all beneficiaries (spouse, children, grandchildren, others) and any existing wills or trusts. Identify conflicts or gaps in the current structure.
Decide whether your estate should be governed by UK law (complete freedom of disposition, potential UK IHT) or Portuguese law (forced heirship, lower Portuguese inheritance tax). Make this election explicitly in both your UK and Portuguese wills.
If your estate is large, review whether life assurance bonds can reduce your taxable estate and provide liquidity. Consider whether lifetime gifting to children or grandchildren could reduce your inheritance tax exposure (with the seven-year survival rule in mind).
Work with law firms in both Portugal and the UK to ensure your wills are coordinated, make the same elections, and do not conflict. Ensure the wills cross-reference each other.
Decide who will manage your estate in each country. If you do not have family members comfortable with the Portuguese probate process, consider nominating professional executors.
Estates change. Children are born or married, property values fluctuate, residency status changes, and tax laws shift. Annual review ensures your plan stays aligned with your wishes and current tax rules.
If you are reading this and thinking:
Then the next step is usually a structured conversation with advisers who understand both jurisdictions. Not because something is urgent. But because estate planning for families in two countries is rarely simple, and the cost of getting it right now is far less than the cost of getting it wrong and having your family spend years in probate disputes and tax complications after you die.
The best time to build an estate plan is while you are alive to shape it, not after your family has to salvage it.
Estate planning for British families living in Portugal is not about:
It is about:
Most British families in Portugal only discover what they should have planned after the will is read and the executors begin the probate process. Those who build the plan while alive rarely regret it.
In a career spanning numerous locations around the world, Ryan has first-hand experience of how to best support international investors with financial planning advice and security on a domestic and international level.
This article is for information purposes only and does not constitute financial or legal advice. Estate planning outcomes depend on individual circumstances, residency status, nationality, family structure and objectives. Professional legal and tax advice should always be sought before making decisions about wills, trusts or cross-border arrangements.
The families who get estate planning right across two countries typically do so because they planned before the question became urgent. A focused conversation now can help you:
British families living in Portugal have the rare advantage of time. You can think clearly about your wishes, consult with advisers in both countries, and structure your affairs while everything is still in order. That window closes the moment your family becomes your executors. A structured conversation with Ryan Donaldson now could protect decades of accumulated wealth from avoidable tax consequences and ensure your family inherits with certainty rather than confusion.
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Ryan Donaldson is a Chartered FCSI Private Wealth Partner at Skybound Wealth who advises British families on cross-border estate planning. A focused planning conversation can help you:
