The concept of inheritance in Portugal

>

Providing a tax-efficient legacy for your family. You've probably spent time doing financial planning to ensure a secure future for yourself in retirement. Have you done the same for future heirs? Do you have strategic legacy planning in place to make sure the right money gets into the right hands at the right time, with minimal tax? A good place to start is to ask a few key questions.

Who gets your assets and wealth? Unlike the UK, where you are free to leave your inheritance to whomever you wish, inheritance law in Portugal makes it compulsory to pass on assets. For Portuguese residents, this means that your spouse and direct relatives can automatically inherit at least half of your worldwide wealth, even if you want to transfer the wealth to others. Prior to 2015, the law of your home country applied to your inheritance by default, which worked well for British expatriates. Now, under the EU's Brussels IV regulation, forced inheritance is automatically enforced in Portugal. However, you can choose to override compulsory inheritance by explicitly stating the relevant UK law in your Will. You need to do this ahead of time; it's not something your heirs can organize after your death. Before doing so, however, get advice about crossing borders to understand the pros and cons and determine what is best for your family.

What will your inheritance be spent on and when? You may need control over when your heirs will receive your inheritance and how they can use it without being subjected to a costly and time-consuming probate process. You can structure your capital in a way that provides tax advantages for yourself during your lifetime, while maintaining control and certainty after you are gone. For example, it may allow you to delay an inheritance until your heirs reach an age when they are likely to be financially mature. Talk to your advisor about appropriate solutions for your goals and family circumstances.

Who will pay tax on your inheritance? Unlike in the UK, where inheritance tax is usually paid by the inheritance before it is passed on, in Portugal each beneficiary pays the tax liability. Portugal's analog to the inheritance tax, the stamp tax, is relatively insignificant in both volume and value.

As in the UK, inherited assets cannot change hands until the tax is paid, so some heirs may find it difficult to pay within the six months set for more valuable inheritances.

Will you be subject to UK inheritance tax? Because UK inheritance tax is determined not by where you live, but where you live - and location is an extremely complex concept - it continues to affect many Britons living here. Those who fall within its scope must pay inheritance tax in the UK at 40% of their worldwide wealth, as well as stamp duty tax in Portugal on assets held here (although there are measures in place to prevent double taxation of the same asset). The law of residence is extremely complex, so seek specialist advice to establish your position and plan accordingly.

What about your own needs? Although you want the best for your heirs, make sure you can enjoy your wealth in the interim and that it will be available when you need it. The secret is to ensure that the right money gets into the right hands at the right time, while meeting your retirement goals. Look for opportunities consistent with Portuguese requirements that will allow you to make the most of what you have, providing tax advantages both during your lifetime and for your heirs in the future. Legacy planning is a complex area, especially when you have to take into account the rules of two countries and their interaction. Get specialized, personalized advice to make sure you have the most appropriate, tax-efficient approach for you and your chosen heirs for the years ahead. Tax rates, area and exemptions are subject to change. Any statements regarding taxation are based on our understanding of current tax laws and practices, which are subject to change. Tax information has been summarized; individuals should seek personalized advice. Keep up to date with financial matters that may affect you on the Blevins Franks news page at www.blevinsfranks.com.

Sharon Farrell is a partner at Blevins Franks in Portugal. www.blevinsfranks.com