Estate Planning in Portugal - Five Things You Should Know
Insights by the experts at Blevins Franks
Our Top Experiences and Tours in Algarve:If youʻre booking your trip to Algarve last minute, we have you covered. Below are some of the top tours and experiences!
Estate planning is a vital part of your overall financial planning. If you live in Portugal or have assests in Portugal, then you need to be aware of the succession laws in Portugal and how that may impact your estate distribution and taxation.
In the article below Sharon Farrell, partner at Blevins Franks, explores some issues you should be aware of and plan for.
Blevins Franks provides international tax advice, estate and pension planning to UK nationals in the Algarve. One-on-one consultations can be arranged. Belvins Franks also hosts regular Seminars on specific topics such as estate planning, NHR (non-habitual residency) and tax issues for expats in Portugal.
Five things you should know about estate planning in Portugal
By Sharon Farrell Partner, Blevins Franks
This article was originally published by Blevins Franks
Estate planning in Portugal may not be as complex as in some European countries, but if you live in Portugal or have Portuguese assets you still need to review and adjust your succession arrangements to suit the local regime. Ensure your estate will be distributed according to your wishes and as tax efficiently as possible.
Start your estate planning review by getting to know some key features of the Portuguese system and how it might affect you and your family.
- Portugal succession law imposes ‘forced heirship’
Portugal, however, imposes restrictions on how freely you can distribute your wealth. If you are a Portuguese resident, the succession law determines that a fixed portion of your estate will automatically pass to your direct family (according to the state’s definition of family). This applies to your worldwide assets, with the exception of non-Portuguese real estate.
As a result, your spouse, children (biological and adopted) and direct ascendants (parents and grandparents) could get a minimum of half your estate, regardless of whether that's your intention.
However, it is possible to ensure your wishes are fulfilled by establishing specific arrangements to override this rule.
- You can choose whether UK or Portuguese law applies to your estate
Foreign nationals, however, can elect for the succession law of their country of nationality to apply instead – therefore overriding Portuguese forced heirship. You must expressly state this in your will or similar legal document, your family cannot opt for this after your death.
What about Brexit? Although it is an EU regulation, your eligibility to apply Brussels IV has not changed since the UK left the EU. It applies to anyone who is resident and/or owns assets within participating countries in the bloc, regardless of EU nationality.
Note that Brussels IV only affects succession law – you cannot choose which country has taxing rights to your estate. That said, applying Brussels IV is complex and could have unwelcome tax implications, so explore all the available options to establish what would work best for you and your heirs.
- Family status determines who pays Portuguese inheritance tax
There are two key rules/exemptions:
- Spouses, descendants (children, grandchildren) and ascendants (parents) are exempt from this tax.
- The tax only applies to Portuguese assets – mostly real estate – regardless of where the donor or beneficiary is resident. Assets in the UK and elsewhere are exempt.
- Each recipient pays the inheritance tax
Ownership of an asset cannot be transferred until the tax is paid – you cannot sell the asset to pay the tax. With stamp duty due within six months after death, some heirs may find it a difficult tax to pay, particularly on higher-value inheritances.
- You could still face UK inheritance tax
Domicile law is extremely complex so take specialist advice to establish your position and plan accordingly.
Portugal estate planning to make life easier for your heirs
Ultimately, it is important to understand how Portuguese succession rules apply to your personal objectives and unique situation, and how they affect your UK liability.
You should also consider how your legacy will be received by your heirs. An extra gift you can leave them is a straightforward and tax-efficient inheritance process. Take action now so your assets can be passed to them as quickly and easily as possible – with some investment structures for example, the funds can be transferred to your nominated beneficiaries without the need for probate – and with as little tax as possible.
With careful planning and specialist, cross-border advice, you can get peace of mind that you have the most suitable estate plan in place, for yourself and your chosen heirs.
Tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should seek personalised advice.
Blevins Franks Wealth Management Limited (BFWML) is authorised and regulated by the Malta Financial Services Authority, registered number C 92917. Authorised to conduct investment services under the Investment Services Act and authorised to carry out insurance intermediary activities under the Insurance Distribution Act. Where advice is provided outside of Malta via the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory system differs in some respects from that of Malta. BFWML also provides taxation advice; its tax advisers are fully qualified tax specialists. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts, retirement schemes and companies. This promotion has been approved and issued by BFWML
You can find other financial advisory articles by visiting our website here www.blevinsfranks.com