A change to how distribution from trusts is treated in Portugal hasn't been widely recognised, a firm advising persons on such issues says.

There remains widespread ignorance of a new trust law in Portugal that came into effect at the start of this year, leaving people to be potentially hit by tax on distributions from trusts, international wealth advisory firm Blevins Franks says.

On 1 January, the Portugal government passed a law that means any distribution from a trust to a Portugese resident pays 28 per cent tax on that sum. There is no relief for the initial cost or capital invested.

Many clients and advisors were unaware of the significant change in Portuguese tax law which came into force on 1 January 2015, whereby any distribution made from a trust to a Portuguese resident recipient, is  subject to taxation at 28 per cent in its entirety, with no relief for initial cost or capital invested.

“Signed by the President of Portugal on 31 December 2014, and effective the next day, the change went unnoticed by many,” Jason Porter, Blevins Franks, said in a note.

“From now on it is only where the trust is entirely wound-up and the assets distributed to the settlor, that the distribution will only be taxed to the extent of the gain, i.e. the difference between the capital gifted into trust and the money received after the winding-up,” Porter continued.

“While these are fundamental changes, an UK expatriate resident in Portugal with a trust should not resign themselves entirely to the 28 per cent taxation, as on a case by case basis there remain many planning opportunities. It is worth noting also that the new law only applies to payments made to residents of Portugal, therefore any payments to non-residents of Portugal may not be affected by this tax, or if the payment is to anybody other than the settlor,” he continued.