Inheritance law differs for country to country. When someone decides to move to Portugal and to hold a property and other assets, such as bank accounts here, it is advisable to take some time to consider what will happen in the future to these assets, when an inheritance takes place.
1. Inheritance law Portugal: default rules often applied
The general rule in Portugal is that when someone dies, their properties and assets pass on to their heirs. There is a list in the Portuguese Civil Code that defines who are the heirs, and the list refers to the immediate family members like husband/wife, children, parents, brothers.
This is why many Portuguese citizens don’t even bother to make a Will, it is not necessary if they accept the general rules. In some cases though, it’s possible to choose and decide the jurisdiction that will be applied to a case in the future.
This can have an enormous impact on the amount of taxes, for instance, since Portugal does not impose an inheritance tax, (although stamp duty is payable in some cases).
2. But local inheritance rules may not be appropriate for expats
On the other hand, it can mean you can choose different rules to apply. Being an expat in a foreign country implies that if you do not want the local general rules to apply, you must and should create a Will that reflects the way you would like your inheritance to be shared, that can reflect your country’s laws.
Let’s say your intention is not to leave a part of your inheritance to one of your immediate family members, such as one of your children. This might be possible under the law of your country of origin, but it is contrary to the Portuguese law.
This means that if you do not leave a written Will, duly registered and certified with a Public Notary, in a case of disagreement between the heirs in Court, the Portuguese law will prevail. In that case, your last wishes regarding the distribution of ownership of your assets will not be considered.
That is why when our clients reach us, they know that it is mandatory to get specialized legal advice because not every lawyer or notary knows how to ensure the rules of the origin country are applies, even in a Will in Portugal.
This is a specific area of law that combines rules from several countries. There are many international and European rules and laws to apply - depending on where you come from - that must be studied and understood in advance to ensure the Will in valid and enforceable, once needed.
We can unfortunately imagine a situation where your inheritance and assets will be the source of a long and expensive disagreement in the Portuguese courts, just because the Will was not written in accordance with the correct rules or was not done at all.
An independent legal expert can provide you with general advice on inheritance law, taking into account all of the applicable laws, and can give you more details on the best structure for your Will, prepare and also advise the solution that can legally minimize or even eliminate the taxes that will be due.
This can make the difference between an enforceable Will, with the elimination of taxes due on the inheritance, and a long and acrimonious debate over the estate in the Portuguese courts.
If you are interested in becoming a Portuguese resident - it is important to note that you are subject to Portuguese law, even if the assets that comprise your estate are located in different countries. This has particular importance when considering inheritance tax in Portugal.
According to article 4 of Regulation (EU) N. 650/2012 of the European Parliament, the courts of the Member State in which the deceased had his/her habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole.
3. Inheritance Tax of choice
You may choose the law of your nationality to govern your succession (or any of a number of laws if you have multiple nationalities). If you do not exercise this choice, the Portuguese law will govern your succession as a resident at the time of death.
Inheritance Tax in Portugal offers one big advantage: having Portuguese law governing your succession is that since 2004 there is no inheritance tax in Portugal. This tax exemption only applies to family members that are directly related - ascending or descending lines (in other words, parents or children of the deceased), as well as the spouse or civil partner – the latter since 2009.
It is important to bear in mind that, despite not being taxed by the State, it is mandatory to declare the assets inherited at the tax office, up to three months after death, to avoid penalties.
Beneficiaries who are not part of the exemption rule (siblings, niece/nephew, uncle/aunt, cousin of the deceased) will need to pay stamp duty tax, which is a flat rate of 10% of what is being inherited (there is an exception from property inherited which adds 0.8% to the 10%). This tax may be paid in up to 10 instalments.
4. Wills and Intestacy
Portuguese law includes two types of succession: legal and voluntary, the latter being governed by a Will. When there is no Will, the estate is divided by the legitimate heirs, (children, spouse and parents).
If you prefer to decide the destination of your estate, you can make a Will (private or public). Both types need to be notarised by a public notary. Note that you can only dispose freely a part of your estate, which vary depending on the number and nature of legitimate heirs.
That said, Inheritance Tax in Portugal requires meticulous planning in order to avoid future difficulties due to tax amounts to be paid by any individual heirs. For example:
- If the spouse is the only legitimate heir, he/she is entitled to half of the inheritance;
- If the legitimate heirs are the spouse and children, the legitimate quota is 2/3 of the inheritance. The available quota to be freely disposed is 1/3;
- If there is no spouse, the children are entitled to half of the estate or 2/3, depending on whether there’s one or more descendants;
- If there are no descendants, but the spouse and ascendants, then the legitimate quota is 2/3.