If you are - or 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.
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.
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.