Estate planning in Portugal – ensuring a tax-efficient legacy for your family

Have you done the same for your heirs? Do you have strategic estate planning in place to ensure the right money goes to the right people at the right time, with as little tax as possible? Taking a proactive approach can help avoid complications for your family and preserve your legacy.

Who will receive your assets and wealth?

Portugal’s ‘forced heirship’ succession law dictates how assets are passed on. For Portuguese residents, this means your spouse and direct family could automatically inherit at least half of your worldwide estate, even if you wished to pass wealth to other beneficiaries.

You can, however, use the EU succession regulation ‘Brussels IV’ to choose to override forced heirship. Portuguese succession law will apply by default, so you must specifically nominate the relevant UK law in your will.

Take integrated estate planning advice for Portugal and the UK, to establish what works best for your family.

What will your legacy be spent on and when?

Your heirs may face probate expenses and delays in Portugal and the UK, depending on where you own assets. Take steps now to mitigate this stress for your family. For example, with some investment arrangements, you can nominate beneficiaries in advance so the funds can be smoothly transferred to them without the need for probate.

You might also wish to establish some control over when your heirs receive your legacy and how they can use it. It is possible to structure your capital in such a way as to provide tax-efficient benefits for you during your lifetime, while also providing control and certainty after you are gone. Ask your adviser about suitable solutions for your objectives and family circumstances.

Who will pay tax on your estate?

The Portuguese equivalent of inheritance and gift tax – stamp duty – is relatively minimal in scope and cost. Spouses and direct ascendants/descendants are not liable for this tax. Other beneficiaries will pay 10%, but only on assets located in Portugal (real estate, shares, vehicles etc.).

Those who have more complex families should note that unmarried partners and step-children could face stamp duty on Portuguese assets inherited/gifted between each other. However, exemptions are available through measures like adoption and proof of cohabitation.

Inherited assets can only change hands once the tax is paid, so some heirs may find it difficult to pay within the six-month deadline on higher-value inheritances.

Will you attract UK inheritance tax?

The UK’s new long-term residence rules provide much more certainty – and tax planning opportunities – than the previous domicile system.

Once you have left the UK, you will remain liable for inheritance tax on your worldwide assets for between three and 10 years. The exact number depends on how many of the previous 20 years you were resident in the UK.

Any assets you own in the UK always remain in scope for UK inheritance tax – and from April 2027 this will also include pension funds. If you plan to live long-term in Portugal, the less assets you keep in the UK, the better. If you keep UK assets below the nil-rate band and leave assets to your spouse and children, you could potentially eliminate any form of inheritance tax altogether.

For those returning to the UK, you will only be assessed for inheritance tax on worldwide assets once you have been living there for 10 of the last 20 years. Until then, only UK-based assets are liable.

What about your own needs?

Although you want the best for your heirs, make sure you can enjoy your wealth in the meantime and that it is available when you need it. The trick is to ensure the right money passes to the right hands at the right time, while still meeting your retirement objectives. Look for Portuguese-compliant opportunities that let you make the most of what you have, providing tax advantages during your lifetime as well as for your heirs in the future.

Cross-border complexity requires joined-up advice

One of the biggest challenges for British expatriates is navigating the interaction between UK and Portuguese rules. Issues such as differing definitions, legal frameworks and tax systems can create unintended consequences if not fully understood. A plan that is effective from a UK perspective may not deliver the same outcome in Portugal, and vice versa. This is why coordinated, cross-border advice is essential.

Working with advisers who understand both jurisdictions helps ensure your estate plan is robust, compliant and efficient, giving you peace of mind that your affairs are in order.

Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.

The 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; an individual should take personalised advice.

Read Dan Henderson previous article: Protecting and growing your wealth – five key elements for successful investing