If you are currently living in Portugal or planning to buy property in Portugal, it is important to be aware of all the legal aspects of managing your estate in order to plan for the future. This includes ensuring that the inheritance process for your heirs is a smooth one, according to your wishes and also as tax-efficiently as possible.
Although estate planning in Portugal is relatively simple compared to other European countries, keep in mind that inheritance taxes vary depending on your home country as well as where you currently live.
The first step is to understand Portuguese inheritance law and how it might affect you and your family.
Portuguese inheritance law
Portuguese inheritance law is laid down within the Portuguese Civic code. According to this law, the inheritance process should be governed by the home country of the deceased. This means that unless there is a will, your estate is taxed and dealt with according to the inheritance laws of your home country. In case the spouse of the deceased has a different nationality, the Portuguese inheritance law allows the country of residence to apply.
Succession laws & forced heirship in Portugal
If you are a resident in Portugal, regardless of what you state in your will there are restrictions on how freely you can distribute your inheritance. This is because of a succession law in Portugal that determines that a fixed portion of your estate will automatically be inherited by your direct family. This applies to your worldwide assets, with the exception of non-Portuguese real estate.
Simply put, if you are a Portuguese resident, your inheritance will follow the system of 'forced heirship'. This means that a spouse and children will have claims to a specific portion of your estate.
Generally speaking, a minimum of 50% of the entire amount of the inheritance goes directly to spouses and descendants. However, the exact percentage depends on whether the deceased's spouse is alive as well as the number of direct descendants (such as children or, in their absence, grandchildren).
Advantages of having a will in Portugal
While a specific percentage of any inheritance is automatically left to the direct family, the deceased has the power to gift a part of his assets to anyone. These can either be family members who would not normally be considered direct heirs, friends or even institutions.
In addition, ensuring a last will and testament in Portugal can also exclude standard beneficiaries such as a child who has not had contact with the deceased for quite some time or an estranged spouse.
Foreign nationals can also state, in their will, that they choose the succession law of their country of nationality to apply to their inheritance. This will override the Portuguese 'forced heirship' rule, thus allowing the inheritance to be attributed in its full amount to whomever the deceased wishes.
Inheritance taxes in Portugal
There is no longer any inheritance tax in Portugal. It was abolished several years ago but there is a fee that beneficiaries of inheritances have to pay. It is called stamp duty ("Imposto do Selo") and is charged at a flat rate of 10%.
Keep in mind that this tax only applies to Portuguese assets. So, in case you have assets in other countries, no stamp duty tax will be charged in Portugal.
Legitimate heirs such as a spouse, children, grandchildren, parents and grandparents, are exempt from paying stamp duty tax on inheritances in Portugal.
In case your heirs aren't Portuguese, they may need to pay some administration fees. These are mainly due to translations and stamps.
When heirs collect an inheritance in Portugal, they may also benefit from specific tax exemptions. These include personal goods, social security allowances, stock dividends or even credit from life insurance, all of which are tax-free.
One of the most important aspects of inheritance in Portugal is related to property. In case a resident in Portugal has a property and wants to donate it in a will, this donation is usually subject to taxes.
It is up to the deceased to leave assets that cover all the fees related to the inheritance. Overall speaking, the heirs of properties won't need to pay these fees since they will come out of the value of that estate directly.
If a deceased resident in Portugal has any withstanding debt, this situation can also reduce the overall value of the estate. If the value of the debts is significant, this will result in a serious cut into the value of an estate. In some cases, the debt value may be so high, that heirs may end up paying rather than inheriting.
Overall speaking, inheritance laws in Portugal are made to protect the family members of the deceased and there are some special tax considerations to ensure that heirs won't have to pay more in debt than the property is worth.
Selling inherited property in Portugal
If an heir decides to sell a property in Portugal that was inherited, they may also need to pay capital gains tax.
Capital Gains - Selling a property in Portugal
Thinking of selling your property in Portugal? Find out what capital gains tax you have to pay and how to pay it on time!
Author: Sofia Cardoso - Senior Accountant at Portugal Accounting