Portugal abolished inheritance tax for direct family members years ago, and this is widely, and correctly, reported as one of the country’s more attractive features for British expats. If you leave your Portuguese assets to your spouse, children, or parents, they inherit free of any Portuguese inheritance charge. For many British families in the Algarve or Lisbon, this sounds like the succession conversation is largely resolved. It is not, for two distinct reasons: who counts as “direct family” under Portuguese law, and what HMRC continues to expect regardless of where you live.
The 10% Stamp Duty: Who It Catches
Portugal taxes free transfers of assets (inheritances and gifts) under its Stamp Duty (Imposto do Selo) at a rate of 10%. For property donations, an additional 0.8% applies. This charge does not apply to direct family members: spouses, children, grandchildren, parents, and grandparents are all exempt. For everyone else, the 10% charge applies in full.
The group of people that catches is larger than most expats initially assume. It includes a long-term partner who is not legally married to you, even if you have lived together for many years. It includes a stepchild you have raised from childhood but have not formally adopted. It includes a sibling, a niece or nephew, a close friend you have always intended to remember, or a charitable cause you wish to benefit. For each of these recipients, 10% of the inherited value is due as Stamp Duty, typically before or shortly after the transfer takes effect.
The practical impact is not abstract. An Algarve villa worth €600,000 left to an unmarried partner generates a €60,000 Stamp Duty charge at the point of death, due when the estate is at its least liquid and when the beneficiary is least equipped to deal with an immediate cash demand. If the property is the primary asset being inherited and the beneficiary does not have liquid savings of that magnitude, the Stamp Duty can force a sale of exactly the asset the testator intended to preserve.
Post-Brexit British nationals do not benefit from the EU Succession Regulation (Brussels IV), which allows EU nationals to elect their home country’s succession law to govern their estate. For British expats in Portugal, Portuguese succession law applies to Portuguese-situs assets in full. Domestic estate planning tools such as a UK will or English law trust do not remove the Portuguese Stamp Duty obligation on Portuguese property, which is a tax charge on the transfer, not a succession law matter.
UK Inheritance Tax Does Not Stop at the Portuguese Border
Even if the Portuguese succession picture is straightforward (direct family heirs, no local charge), most British expats in Portugal retain a second exposure that is less well understood: UK inheritance tax on their worldwide estate.
HMRC charges inheritance tax at 40% on the worldwide estate of UK-domiciled individuals above the nil-rate band of £325,000. Domicile is not the same as tax residence. A British national who has lived in Portugal for five, eight, or even twelve years may still be UK-domiciled under HMRC’s “domicile of origin” rules if they have not taken deliberate steps to establish a settled intention to remain in Portugal permanently, and if they retain meaningful connections to the UK. This is a factual assessment, not an automatic change. Most British expats, who keep family, property, or financial ties to the UK, remain UK-domiciled throughout their time abroad.
From April 2025, the UK moved to a residency-based test for IHT on non-UK assets. Once you have been non-UK resident for ten consecutive tax years, your non-UK assets begin to phase out of UK IHT exposure under the new rules. For long-term British residents in Portugal this creates a meaningful planning horizon. But for those in the first decade of residence, or those who have not consistently met the SRT overseas tests, UK IHT on worldwide assets (including Portuguese property, Portuguese investment accounts, and assets held anywhere else in the world) remains fully in scope at 40%.
The combined picture for many British families in Portugal: Portuguese Stamp Duty on assets passing to non-direct heirs, and UK IHT at 40% on the worldwide estate if still UK-domiciled. These exposures operate in parallel and are not simply offset against each other.
The Named Beneficiary Approach
A portfolio bond, an international investment-linked insurance policy written out of a jurisdiction such as the Isle of Man or Guernsey, addresses both exposures through a mechanism that sits outside the estate altogether.
A portfolio bond is a life assurance contract. As with any insurance policy, the policyholder can nominate beneficiaries who receive the proceeds directly on death, outside the probate process and outside the testamentary estate. Under Portuguese law, life insurance proceeds paid to named beneficiaries are generally treated separately from the rest of the estate for succession purposes. This means the policy value passes directly to the nominated person (whether a spouse, a partner, a stepchild, or a close friend) without going through the Portuguese succession process and without attracting the 10% Stamp Duty charge that would otherwise apply to non-direct heirs inheriting estate assets.
For the UK IHT dimension, the policy value may, if the structure is set up correctly (typically involving a trust arrangement), be kept outside the UK taxable estate. This is established planning used by cross-border advisers and UK IFAs for decades. It requires proper structuring from the outset and specialist advice, but the mechanism is well-understood and widely available through providers such as RL360, Hansard, Friends Provident International, and Utmost International, all of which write policies out of Isle of Man or equivalent Crown Dependency jurisdictions familiar to British investors.
An additional practical advantage: a portfolio bond travels with the policyholder. If your life in Portugal is not necessarily permanent (many British expats in the Algarve retain the possibility of returning to the UK, or moving on to another destination), the policy stays in force through those moves without needing to be unwound and rebuilt in each new jurisdiction.
If you have recently been thinking about succession planning in Portugal, or have become aware that your existing structure does not adequately address either the local stamp duty exposure or the UK IHT tail, it is worth having an independent conversation before making decisions. Request a free consultation here