Estate planning in Portugal – how to protect loved ones

The main considerations for most of us in this area of ​​planning are “control” and “imposition”. This ensures that assets are passed on to the right people, in the right proportions, at the right time with minimal taxation. But as expats, in order to ensure this happens, you need to carefully consider the inheritance rules of Portugal, your home country, and any interaction between the two.

Understand the Portuguese rules

Unlike the UK, where you can generally leave your assets as you wish, Portugal has “forced inheritance” rules. These require you to leave certain proportions of your assets to specific family members and apply to your worldwide estate (excluding non-Portuguese real estate).

For expatriates, the “Brussels IV” regulation means that the rules of your country of habitual residence will apply, so forced inheritance could apply to you, unless you specifically choose that the inheritance law of your country of nationality applies via your will, or other appropriate legal documents. This must be done during your lifetime and cannot be changed after your death. But it is important to note that this does not affect the tax rules that apply, only the rules around inheritance, and these two issues should be considered independently.

There are no inheritance taxes in Portugal. Instead, stamp duty is due at 10% on assets located in Portugal that pass to someone other than a spouse or direct ascendants or descendants. This tax is paid by the beneficiary, regardless of their place of residence, and must be paid before receiving the property. It is due within 6 months of death, so for large gifts and inheritances this could be a problem for your loved ones.

Impact of your nationality

A particular problem for UK expats is that their liability to UK Inheritance Tax (IHT) is not determined by where they live (as with Brussels IV), but by where they live. This means that even if you have lived in Portugal for many years, you may still be subject to UK IHT as well as Portuguese tax. There are rules in place to avoid double taxation, but again this will have to be settled by the beneficiaries and your executors, which could be complex and costly.

It is possible to get rid of your home in the UK, but this is very complex, so specific advice should be sought.

Tax mitigation

The IHT is sometimes considered a voluntary tax because with proper planning, you can take many steps to reduce your estate and gift tax liability. From a Portuguese perspective, it can be as simple as holding your assets outside of Portugal. For UK nationals, the planning is likely to be a bit more complex, such as using any allowances and gifting rules, trusts or trust-like structures, or changes of domicile.

And Wills?

UK wills are valid under Portuguese law, but in practice it is likely to be more difficult, expensive and time consuming for your executor or heirs to go through the bureaucracy in Portugal. We suggest that you have a separate will for each country in which you hold assets. They must recognize other wills, however, they must not substitute or conflict with each other.

Even if you already have a plan in place, it’s important to review it periodically, or if your family or financial situation changes.

With careful planning and our expert cross-border advice, we can help you create the right estate plan for you and your family.

For more information, please visit Mark Quinn is a Certified Financial Planner with the Chartered Insurance Institute and a qualified tax consultant with the Association of Tax Technicians. Contact Mark at: [email protected]

About Vicki Davis

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