Your estate planning in Portugal needs careful attention to meet your wishes for your family and heirs. You need to revise your previous UK arrangements to suit the different Portuguese inheritance regime.
You have probably spent time on your financial planning to provide a secure future for yourself throughout retirement. Have you done the same for your future 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? Let’s answer some key questions to help get you started.
Who will receive your assets and wealth?
Unlike the UK, where you are generally free to leave your estate to whomever you choose (Scotland does have some limitations), Portugal’s ‘forced heirship’ succession law dictates how assets are passed on. For Portuguese residents, this means that 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. This is not something your heirs can arrange after your death.
Take integrated estate planning advice for Portugal and the UK first, to understand the pros and cons and 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. You could, for example, delay the timing of an inheritance until your heirs reach an age where they are likely to be financially mature. Ask your adviser about suitable solutions for your objectives and family circumstances.
Who will pay tax on your estate?
Unlike the UK, where inheritance tax is usually paid by the estate before changing hands, in Portugal each recipient pays the liability.
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, step-parents 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?
UK inheritance tax liability has been determined by domicile rather than residence. This incredibly adhesive concept has meant that most British expatriates remain liable on their worldwide assets.
This is about to change – from 6 April 2025, the domicile regime will be replaced by a residence-based system. This is welcome news as it will provide more certainty about British expatriates’ UK inheritance tax position.
Once you have left the UK, you will remain liable for inheritance tax on your worldwide assets for between 3 and 10 years. The exact number depends on how many of the previous 20 years you were resident in the UK.
For those living in or moving to the UK, you will be assessed for inheritance tax on worldwide assets once you have been living there for 10 of the last 20 years.
Any assets you own in the UK always remain in the scope of UK inheritance tax. From April 2027, this will also include pensions.
Once the relevant legislation has been published it will provide more clarity on the new system.
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.
Estate planning is a complex area, especially when you consider the rules of two countries and how they interact. Take specialist, personalised advice with Blevins Franks for peace of mind that you have the most suitable, tax-efficient approach in place, for you and your chosen heirs, for years to come.
Contact Blevins Franks today.
