In recent years, with the mass movement of citizens around the world as a result of globalization and ease of travel, new types of problems have been emerging.
A relevant issue that has not been given much importance and that requires careful and coherent consideration is the issue of inheritance.
Many migrants residing in Portugal have not yet realized that if they die in a country other than that of their nationality, their assets may have to be distributed in accordance with the rules of that country, often frustrating their plans for their loved ones and potentially plunging them into lengthy court battles.
Furthermore, mismatches between different countries’ legal systems could lead to unnecessary taxation, particularly in the event of Trusts, which are a common law (Anglo-American) concept that does not exist in civil law (the continental system).
For this reason, making a Portuguese will is extremely important whether you have properties or other assets in Portugal. This will ensure that your assets go to the people you choose, respecting your wishes and their interests, with much less cost and greater speed.
Portuguese law does not fully respect the Will (or will) of the planner
Default rule – statutory distribution
Perhaps most importantly, the default position of Portuguese law is that some, even if not all, of the assets of a deceased must be distributed in a certain way.
According to the inheritance distribution rules in Portugal, the following are legitimate heirs by right, i.e. forced, and in accordance with the following order:
- a) Spouse and descendants (children, grandchildren)
- b) Spouse and ancestors (parents and grandparents)
- c) Siblings and their descendants
- d) Other relatives up to the fourth degree (first cousins, great-uncles and great-nephews)
- e) state
The closest family members have priority, that is, they are the first to be called into succession and exclude the right to inherit from those who follow.
If you intend to benefit people other than the legitimate heirs, it is necessary to leave this wish written in a will.
The law establishes that a part of the inheritance, the so-called legitimate share, must be attributed to the legitimate heirs. That is, to the spouse, descendants and ancestors. These heirs are thus safeguarded and their share of the inheritance cannot be donated or left in a will to other people.
Only the remaining portion, known as the available share, can be transmitted by will to whoever you wish, whether family or not.
A choice for foreigners – excluding Portuguese law
Despite the general will, a choice is offered to “foreigners” – they can make a Portuguese will, leaving their assets to a person of their choice. This will must contain the declaration that his personal rights are governed by the principle of free disposition of assets by will and that it is the law of his nationality that applies.
It is highly recommended that such a Will will follow both the rules of Portuguese law and the rules of foreign law.
This practice is then accepted for the Central Register of Wills in Portugal.
Inheritance tax in Portugal
Portugal does not have inheritance tax, but it does have a general tax on contractual transactions that applies to inheritances, called stamp duty tax.
The stamp duty tax is applied to transactions in Portugal. This could lead to double taxation in matters of inheritance when a state uses a criterion such as personal connection with the deceased or heir who owns or receives assets that are located in Portuguese territory and also claim the right to tax the same succession. This is the most common criterion around the world, including in Portugal.
The Portuguese Stamp Tax Code (CIS) establishes, in no. 3 of its art. 4th, the principle of territoriality as a guide in terms of delimiting tax jurisdiction in the context of inheritance taxation, as it determines that the tax is due whenever the assets are located in national territory, regardless of the residence of the beneficiaries of the respective transfer, or the residence of the author of the transmission.
In other words, stamp duty tax in Portugal (ade factoinheritance tax) applies to assets within Portugal.Importantly, stamp duty does not apply to transactions in a direct line of succession, providing an effective exemption from inheritance passed to direct descendants and ascendents.
Note, however, that this lucrative position could be undermined by having a trust cover the assets in Portugal. Having a trust separates the direct line of succession and could thus lead to a stamp duty applying to a transaction that could have otherwise been exempt from taxation.
Summary
It is important to remember that moving to a different country can cause many cases of legal friction and it is important to analyse different aspects of one’s life when making such a change.
This is particularly true for estate planning, for both equitable and tax reasons.
A Portuguese Will is essential if a person wishes to make sure that his or her inheritance occurs based on their preferences and wishes. Portuguese law forces a certain distribution but also respects foreign law, but only if a Portuguese will is drafted.
From a tax perspective, different clashes between systems could lead to unnecessary taxation, such as in the event of a trust that separates a direct line of inheritance.
It is very important to discuss your estate plan with a Portuguese lawyer and make sure all points of frictions are minimised.
Questions and Answers
Are Wills done in the same way in Portugal and other countries?
Portuguese wills are written and signed in a different way to the way they are done in the United States or United Kingdom, for example. The format of the Will is different, as is the style.
In Portugal, the Notarial system is used to sign important documents such as Wills, which are deposited in a Notary's Office. The role of the Notary is essentially to ensure that you are who you are, that you understand what you are signing, to make sure that you are signing the document of your own free will and to comply with certain formalities.
It is important to understand that notaries are not experts of foreign law or cross-border planning and should not be expected to control every aspect of the intricacies between the jurisdictions.
Is it mandatory to make a will in Portugal, for the assets I have in the country? What if there is already one in the country of which I am a national?
No, however, if you don't make a will you run the risk of your assets going to the wrong person. It will also make the inheritance process more complicated, time-consuming, and costly than necessary.
It is completely possible to have a Portuguese will and another in the country of which you are a national, however they must be written to ensure that they work together effectively, so that one of your wills does not accidentally revoke the other, so it is essential that a lawyer with experience in these situations draft your wills for you.
And why not leave my assets in Portugal in my will in the country of which I am a national?
Because, taking into account that the two legal systems are different, the cost of translating and legalizing a will and all the documents necessary to claim the inheritance in Portugal, from your country of nationality into Portuguese (which is required in an inheritance) is generally higher than the cost of making a Portuguese will.
Furthermore, the tax implications are different from country to country and in most cases there are tax fines for non-payment of stamp duty (inheritance tax in Portugal carries unnecessary interest and fines, which will not be possible to do because deadlines are costs in Portugal and the legalization and translation of documents will certainly not be carried out in a timely manner!
Another reason of great interest is the lower probability of litigation between heirs.
More bureaucracy… More costs and charges… More delay…
For all these reasons, making a Portuguese Will, under our advice, is the recommended option!
What are the costs and procedure and costs of making a will in Portugal?
Our basic service covers a carefully considered “opt-out” will. This is a will opting out of Portuguese law and including some basic concepts of Portuguese law.
We charge a small fixed fee for such a will.
This service does not cover comprehensive advice on foreign law. We could review your estate plan, discuss it in great detail with your overseas advisors or even prepare a new one with experts that we work with, but this is billed on an hourly basis and is not covered by the basic service.
In addition, the notary charges approximately 160-200 euros + IVA for each will, paid directly to the notary.
On the scheduled day, you must be accompanied by two witnesses and everyone must present an identification document (Citizen's Card or equivalent, national driving license or license issued by a European Union country or passport).
In case of urgency or if there is difficulty in obtaining witnesses, the Notary Code allows the notary to waive his intervention. You must, however, mention this fact in the will, and we do not recommend it.
Please note that if you do not speak Portuguese, you will need a translator.
What taxes does a will entail in Portugal?
In the case of wills, the heirs' tax obligations include paying Stamp Tax on the assets received.
Regarding the payment of this Tax, there is exemption from payment for ascendants, descendants, spouses or civil partners and application of a rate of 10% on assets subject to taxation (plus 0.8% in the case of real estate) for the remaining heirs.
With regard to the IRS (Income Tax), you will only have to declare the income obtained from the inheritance, such as interest, rental income or capital gains, if any.
Why us?
We are the leading experts in Portugal representing expats and have one of the largest commercial and tax teams, focusing exclusively on expats. We also have many years of experience dealing with all aspects of Portuguese Wills, cross-border planning and tax charges.
