Key figures — as of 2026-10-11: From 6 April 2027, unused UK pension funds and death benefits join the taxable estate for UK Inheritance Tax at up to 40% above the nil-rate band (£325,000, plus up to £175,000 residence nil-rate band) — HMRC projects around 10,500 estates will face a new IHT liability in 2027-28, averaging an extra £34,000 each — UK-situated pensions stay inside UK IHT's reach regardless of how long you've lived in Portugal — the UK-Portugal double tax treaty does not cover inheritance tax.
The rule that quietly ends a 20-year planning assumption
For two decades, British pension savers have treated their pots as the cleanest asset to leave behind — build it up, don't touch it, pass it on free of inheritance tax. That changes for deaths on or after 6 April 2027. From 6 April 2027, most unused pension funds and pension death benefits will be brought within the value of a deceased person's estate for Inheritance Tax purposes. The rule was confirmed in the Autumn 2024 Budget and became law earlier this year, so there's no ambiguity left about whether it's happening — only about who it catches.
For Britons who've retired to the Algarve, Lisbon, the Silver Coast or Porto, the timing matters because many assumed that moving abroad, or holding Non-Habitual Resident (now closed) status, insulated their pension from UK tax on death. It doesn't.
Why Portugal residents aren't exempt
For UK expats, the challenge is not Portuguese taxation, but UK law — because pensions held in the UK are classified as UK-sited assets, they remain within HMRC's reach regardless of where you live. That's the crux. Even retirees who've spent years outside the UK's long-term residence test for worldwide assets will still find their UK pension pot caught, because it's a UK-situs asset, not a worldwide one.
Nor does the UK-Portugal tax treaty rescue anyone here. The current UK-Portugal Double Taxation Convention does not cover inheritance tax — the 2025 convention entered into force on 29 December 2025 and applies to taxes on income and capital gains, not bilateral treaty relief for UK IHT or Portuguese Stamp Duty on inheritances. So a British pensioner resident in Portugal can still face a 40% UK bill on their pension, on top of whatever (usually far lighter) treatment applies under Portugal's own Imposto do Selo stamp duty, which exempts direct family entirely.
What actually changes on 6 April 2027
Under today's rules, most defined contribution pensions sit in discretionary trust structures, so HMRC doesn't count them as part of your estate. Most personal and workplace pensions are held in 'discretionary trust arrangements', meaning the scheme's trustees have the final say over who inherits your pension, and HMRC doesn't treat those funds as yours — so in 2026/27, there's no IHT on pensions of this kind. From 6 April 2027 that shelter disappears for unused funds and most lump-sum death benefits, which get added straight into the estate's value for IHT purposes. Unused pension funds could be taxed at 40% on death if your estate exceeds available IHT allowances — funds transferred to a spouse or civil partner remain exempt, meaning this change will mainly affect families on the second partner's passing away.
The scale isn't trivial but it's also not universal. HMRC estimates that out of around 213,000 estates with inheritable pension wealth in 2027-28, about 10,500 will have a new IHT liability, with the average additional bill expected to be around £34,000. A worked example circulating among UK advisers: a 55-year-old with a defined contribution pension of £400,000 could previously pass unused funds to their children entirely free of inheritance tax, but from April 2027 that same inheritance could attract a bill of around £30,000.
GrowIN's calculation: what £34,000 means in euro terms
Converting that average extra HMRC bill at current exchange rates puts the typical hit at roughly €39,000–€40,000 per affected estate — enough to cover more than three and a half years of Portugal's €920 monthly minimum wage, or a meaningful chunk of a deed and notary bill on a mid-range Portuguese property. For couples with combined pension wealth above £650,000, the exposure can realistically run into six figures in euros once both estates and a family home are factored in. That's GrowIN Portugal's own framing of the HMRC figures — not an HMRC projection itself — and it's the number that should prompt a proper review, not just a Google search.
"A pension that was invisible to UK tax collectors for twenty years becomes fully visible on 6 April 2027 — and distance from the UK won't change that." — GrowIN Portugal Editorial
What British residents in Portugal should actually check
Start with a straight audit: how much is sitting unused in UK defined contribution pots, drawdown accounts, or undrawn annuities, and who's currently nominated as beneficiary. Outdated choices may lead to unintended beneficiaries inheriting the pension, since circumstances alter over the years and it's important to ensure nominations reflect those changes. Second, work out whether your estate — UK and Portuguese assets combined — will sit above the £325,000 nil-rate band (plus up to £175,000 residence nil-rate band) once the pension is added back in; many estates that looked comfortably below the threshold won't be after 2027. Third, if you're married or in a civil partnership, remember the first-death exemption still holds, so the real exposure usually lands on the second death — plan accordingly rather than panicking over the first.
None of this is a reason to rush into transferring a UK pension to a QROPS or drawing down funds purely to dodge the new rule — both moves carry their own tax and currency consequences that need proper cross-border advice, not a DIY fix. Anyone weighing a transfer should also check how it interacts with Portuguese tax residency rules; our tax and NIF guide covers how UK pension income is currently taxed once you're resident here.
What to watch next
HMRC's technical guidance is still being refined ahead of the April 2027 start date, and professional bodies continue to flag edge cases — particularly around death-in-service benefits and how exactly unused drawdown funds will be valued. Portuguese residents should also keep an eye on how the UK's long-term residence test (replacing the old domicile rules from April 2025) interacts with pension situs rules, since that determines whether other, non-pension UK assets stay in scope too.
This is a UK legal change, not a Portuguese one, and nothing here constitutes financial or tax advice — get a cross-border adviser who understands both HMRC and Finanças involved before April 2027 arrives.