Optimal Estate Planning Solutions for British Expats in Portugal Post-NHR

A Shifting Landscape: New Realities for British Residents in Portugal

The Portuguese tax landscape is undergoing significant transformation. For British expatriates approaching the end of their 10-year Non-Habitual Resident (NHR) period, this shift presents both challenges and opportunities—particularly in estate planning and wealth preservation.

The favourable conditions offered under the NHR regime are now expiring, and legacy structures—particularly British Virgin Islands (BVI) trusts—are increasingly proving counterproductive under Portuguese tax law. This calls for a timely and strategic reassessment of existing estate planning arrangements.

The End of the NHR Regime: What It Means

The NHR programme provided a tax-advantaged window for new residents, offering:

  • A flat 20% tax on certain Portuguese-sourced income

  • Exemptions for most foreign-sourced income

 

However, this status lasted for a fixed period of 10 consecutive years from the date of approval, with no extensions beyond that window.

For many British expats who entered the programme during its earlier years, the countdown is now reaching its conclusion. As a result, they will soon become subject to Portugal’s standard progressive tax rates, which include:

  • Up to 48% on income

  • An additional 10.2% in social security contributions, raising the effective top rate to 58.2%

This dramatic shift can significantly erode long-term wealth without proactive restructuring.

The Problem with BVI Trusts in a Portuguese Context

Historically, BVI trusts have been a popular choice for international wealth protection. However, for individuals resident in Portugal, these structures now present serious tax inefficiencies due to their classification under local rules.

 

Key Issues:

  • Portugal maintains its own domestic blacklist of tax haven jurisdictions, which includes the BVI—even though the EU removed the BVI from its own blacklist in October 2023.

  • As a result, distributions from BVI trusts to Portuguese residents are taxed at 35%, compared with the standard 28% for distributions from non-blacklisted jurisdictions.

  • This 7% surcharge on trust distributions makes BVI trusts not only inefficient but actively detrimental to wealth preservation when the beneficiary resides in Portugal.

Even though the BVI remains a legitimate jurisdiction under international trust law, Portugal’s independent tax classification undermines its utility in this specific context.

Cyprus International Trusts and Portuguese-Compliant Bonds: A Smarter Estate Planning Framework

For British expatriates in Portugal re-evaluating their offshore structures, Cyprus International Trusts (CITs) present a highly effective alternative to BVI trusts. With tax advantages recognised under Portuguese law, Cyprus trusts combine common law familiarity with EU-aligned compliance and offer one of the most robust frameworks available for modern cross-border estate planning.

Tax Advantages of Cyprus Trusts for Portuguese Residents

Cyprus is not blacklisted by Portuguese tax authorities, meaning distributions from Cyprus trusts to Portuguese residents are taxed at the standard 28% rate, rather than the punitive 35% applied to blacklisted jurisdictions such as the BVI. This 7% tax saving can result in material long-term benefits for high-net-worth individuals.

Additional tax-related benefits include:

  • No Cyprus income tax on foreign-sourced income where beneficiaries are non-residents

  • No withholding tax on distributions to beneficiaries

  • No estate duty or inheritance tax on trust assets

  • Access to Cyprus’s wide network of double taxation treaties, allowing further structuring options

Legal Framework Strength and Familiarity

Cyprus operates a common law system based on English legal principles. This gives British expats predictability, legal familiarity, and a smooth transition from UK-centric planning. The CIT regime is underpinned by:

  • The Trustees Law of Cyprus (Cap. 193)

  • The International Trusts Law of Cyprus (1992, as amended)

These laws provide a modern, flexible, and secure legal environment. Once settled into a Cyprus trust, assets are legally separated from the settlor’s estate, offering strong protection from claims, creditors, and family disputes.

Portuguese-Compliant Investment Bonds (ICAE): Tax-Efficient Wealth Accumulation

For clients seeking investment vehicles recognised under domestic Portuguese regulations, Portuguese-Compliant Investment Bonds—officially classified as Instrumentos de Captação de Aforro Estruturados (ICAE)—provide unparalleled tax efficiency and planning benefits.

Graduated Tax Treatment:

  • Held ≤ 5 years: 28% on 100% of gains

  • Held 5–8 years: 28% on 80% of gains (effective rate: 22.4%)

  • Held > 8 years: 28% on 40% of gains (effective rate: 11.2%)

This structure enables British expats to legally reduce their tax liability by over 60% if investments are held for eight years or more.

Flexibility and Cross-Border Portability

Portuguese-compliant bonds offer:

  • Full access to diversified investment options, including mutual funds, equities, ETFs, and real estate investment trusts

  • Multi-currency flexibility, with GBP, EUR, and USD denominations

  • The ability to adapt to future relocations, with some bonds modifiable to remain compliant if the client changes residency

Integrated Estate Planning Benefits

These investment bonds:

  • Bypass Portuguese probate procedures

  • Avoid stamp duty on death for most beneficiary transfers

  • Allow death benefits to be paid directly to nominated individuals, free from capital gains tax under current law

This makes them an ideal solution for wealth transfer alongside trust structures.

Advanced Estate Planning Strategies for British Expats in Portugal

Hybrid Structures for Complex Estates

For British expatriates with diversified asset portfolios—spanning property, business interests, liquid investments, and international holdings—a hybrid estate planning approach can deliver the most efficient tax outcomes and ensure control over wealth transfer across borders.

A well-constructed strategy often combines a Cyprus International Trust (for holding non-Portuguese and illiquid assets) with a Portuguese-Compliant Investment Bond (for liquid, income-generating financial assets). This dual-structure ensures full alignment with Portuguese tax rules while maintaining control, flexibility, and efficiency.

Seamless Family Wealth Transfers

Using irrevocable discretionary trusts and compliant investment vehicles together can offer:

  • Protection against forced heirship rules in Portugal

  • Avoidance of probate delays

  • Tax-efficient lifetime transfers to heirs

  • A legally sound mechanism to bypass inheritance disputes

When assets are placed into a properly structured trust during the settlor’s lifetime, they are removed from the personal estate—ensuring smooth succession and shielding from post-mortem legal complications.

UK Inheritance Tax Reform: New Opportunities

From April 2025, the UK’s shift to a residency-based inheritance tax regime introduces a crucial planning advantage for long-term British expats:

  • British nationals living outside the UK for 10 of the last 20 years will no longer be liable for UK inheritance tax on non-UK assets.

  • This change applies to foreign property, savings, and investments—enabling strategic asset relocation and legacy planning outside the UK tax net.

This reform aligns well with the Cyprus trust strategy, which naturally separates assets from the settlor’s estate and can hold non-UK wealth with favourable treatment under both Portuguese and UK law.

Professional Guidance and Timely Implementation

 Why Immediate Action Matters

As the NHR benefit period ends and Portuguese tax obligations tighten, expats with existing structures—especially BVI trusts—must act quickly to avoid:

  • Elevated income tax liabilities on trust distributions

  • Inefficient or non-compliant investment vehicles

  • Unintended exposure to Portuguese inheritance rules or stamp duties

Planning in advance of the NHR transition can mitigate future tax exposure and preserve the benefits of proactive international structuring.

Advisory Complexity: Why Specialist Support is Essential

Cross-border estate planning for British expats in Portugal involves:

  • Portuguese domestic tax law

  • Cyprus trust regulation

  • UK inheritance tax changes

  • EU succession rules (notably Brussels IV)

  • Coordination of investment, legal, and family considerations

This intricate mix requires the involvement of qualified professionals familiar with all three jurisdictions. Horizon Associates collaborates with trusted legal, fiduciary, and tax partners across the UK, Portugal, and Cyprus to deliver integrated, compliant solutions.

Conclusion: A Unique Window of Opportunity

For British residents nearing the end of their 10-year NHR term in Portugal, this is a pivotal time to reassess wealth preservation and estate transfer plans. The combined use of: