Your UK Pension Will Be Subject to Inheritance Tax from April 2027: What It Means If You Live in Portugal

For years, a UK pension was one of the simplest ways to pass wealth to the next generation. Unused pension funds usually sat outside your estate, free of UK inheritance tax (IHT). Many British families moving to Portugal built their estate plans around that assumption.

That changes for deaths on or after 6 April 2027. The rules became law when Finance Act 2026 received Royal Assent on 18 March 2026. From that date, most unused pension funds and pension death benefits are added to the value of your estate for IHT.

Moving to Portugal does not take your UK pension out of the net.

What is changing

• Unused pension pots join your estate. Money left in a defined contribution pension (a SIPP, personal pension or workplace pot) and lump-sum death benefits will count towards your estate on death.
• The 40% rate applies above the usual thresholds. IHT is charged at 40% above the £325,000 nil-rate band, plus the £175,000 residence nil-rate band where it applies. Both are frozen until April 2031.
• Executors are responsible. Your personal representatives, not the pension scheme, must report and pay any IHT due on the pension.
• Spouses and charities stay exempt, but with an important catch for international couples (see below).

The "double tax" problem after age 75

If you die after age 75, your beneficiaries already pay income tax when they draw your pension. From April 2027 they may also face IHT on the same money.

Take a beneficiary who pays 45% income tax. The pension first suffers 40% IHT. The remaining 60% is then taxed at 45% as it is drawn. That leaves 33%, an effective tax rate of around 67%.

Why living in Portugal does not protect your UK pension

UK inheritance tax now depends on two things: where your assets are, and your UK residence history.

1. UK assets are always in scope

A UK-registered pension is treated as a UK asset. Non-residents have always been liable to UK IHT on UK assets such as UK property, shares and bank accounts. From April 2027 that includes your UK pension, however long you have lived in Portugal.

2. Your worldwide estate may still be in scope too

Since 6 April 2025, the UK has used a long-term residence (LTR) test instead of domicile. You are a long-term UK resident if you were UK tax resident for at least 10 of the previous 20 tax years. Long-term residents pay UK IHT on their worldwide estate, including assets in Portugal.

Leaving the UK does not end this immediately. You stay within scope for a "tail" period after you leave: 

Most British people moving to Portugal in mid-life have been UK resident for 20 years or more. That means a 10-year tail: their Portuguese home, bank accounts and investments can stay within UK IHT for a decade after they leave.

3. Overseas pensions and QROPS

For long-term UK residents, IHT can also apply to qualifying overseas pension schemes (QROPS and QNUPS) wherever they are based. Once you are no longer a long-term resident, schemes established outside the UK generally fall outside the UK IHT net. Transferring a pension abroad is a major decision with its own tax charges, so it needs careful, regulated advice.

The spouse trap for international couples

Transfers between spouses are normally unlimited and free of IHT. But if you are a long-term UK resident and your spouse or civil partner is not, the exemption is capped at £325,000.

This matters for mixed-nationality couples, for example a British husband and a Portuguese or non-British wife. A non-long-term resident spouse can elect to be treated as a long-term resident to unlock the full exemption. However, that brings their own worldwide estate into UK IHT, so the election needs careful thought.

How Portugal fits in

Portugal does not have an inheritance tax as such. Instead, it charges 10% stamp duty (Imposto do Selo) on certain gifts and inheritances of Portuguese assets. Spouses, children and parents are generally exempt.

In practice, this means UK IHT is often the larger risk for British families in Portugal. Your beneficiaries may also face income tax on pension withdrawals, and where that is taxed depends on where they live and the relevant tax treaty.

For a fuller explanation of Portuguese succession rules, including forced heirship, see our guide to Portugal inheritance rules for foreign residents.

Worked example

David, 68, moved to Portugal in 2024 after living in the UK all his life. He owns a home in Portugal worth £450,000, investments of £250,000 and a UK SIPP of £600,000. His wife has already died, and he leaves everything to his two children.
• David was UK resident for over 20 years, so he remains a long-term UK resident until 2034.
• If he dies in 2028, his worldwide estate is in scope: £700,000 plus the £600,000 SIPP, totalling £1.3 million.
• With one nil-rate band of £325,000 and the transferred band from his late wife (another £325,000, if unused), around £650,000 is taxable at 40%: roughly £260,000 of IHT.
• Before April 2027, the SIPP would usually have been outside the estate. The bill would have been about £20,000.
This is a simplified illustration. The residence nil-rate band is not shown, and real cases depend on the facts.

What to review before April 2027´

1. Work out your long-term residence status and tail. Count your UK tax-resident years and the date your tail ends.
2. Update pension nominations. Check who your expression-of-wish forms name, and whether that still makes sense.
3. Consider drawing more income during your lifetime. Depending on your Portuguese tax position (including IFICI or standard rates), using pension funds rather than leaving them may now be more efficient.
4. Review lifetime gifts. Gifts survived by seven years fall outside the estate, and regular gifts from surplus income can be exempt immediately.
5. Check your spouse's status. If one of you is not a long-term resident, consider whether an election makes sense.
6. Look at life cover in trust. A policy written in trust can provide cash to pay the IHT bill.
7. Make sure your wills work in both countries. A UK will and a Portuguese will that conflict can create delays and extra cost.

 What Should British Expats in Portugal Consider?

With the changes taking effect in April 2027, now is a good time to review how your UK pension fits into your wider estate planning.

For British residents in Portugal, this means looking at both countries together. Your UK residence history, pension arrangements, tax position and inheritance plans can all affect what happens to your assets and what your beneficiaries may receive.

Coordinating legal, tax and financial advice across both jurisdictions can help identify potential issues early and ensure your arrangements reflect the new rules.

Disclaimer: This article is for general information purposes only and does not constitute legal, tax or financial advice. Pension transfers and investment decisions should be discussed with a regulated financial adviser. Figures are correct as of 6 October 2026.*

Source: GOV.UK – Technical note: Inheritance Tax on pensions