Whoever first coined this much-quoted phrase was surely foretelling the day when death and inheritance tax would be a serious concern for many, especially the wealthy.

However, they did not see the future for Portugal, where death can be more or less inheritance tax-free.

Expats in Portugal

Whether you have relocated to work or to retire, as an expat in Portugal you can, with a little planning and foresight, leave your wealth and assets to your family and pay much less than those who die as a UK resident or domicile.

If you are a Portugal resident, Portuguese inheritance law can be applied to your estate when you die (thanks to EU regulation Brussels IV) and this may prove beneficial.

Portuguese succession laws differ greatly when compared to UK rules, so it’s important that you understand how they might affect your estate, your beneficiaries and where and when any relevant taxes will need to be paid. It is also a good idea to determine where you are domiciled as this could affect how your estate is taxed – if you are considered by HMRC to be UK domiciled even after living in Portugal for years, you could still face UK tax of 40% on global assets.

If you don’t want Portuguese laws to apply to your estate, you can draw up a Will as if you were still in your home country and your estate will be distributed and taxed according to the inheritance laws applicable to that jurisdiction. However, depending on your circumstances and who you wish to benefit from your estate, you might be better off having a Portuguese Will that recognises Portuguese inheritance rules.

Everyone is different, and what might be right for one person may not be suitable for another, so it’s always a good idea to seek appropriate, expert advice. Whatever you decide to do, and whichever country’s laws you want applied to your estate, drawing up a Will as soon as possible is always a sensible idea.

Death and taxes in Portugal

In Portugal, there is a system of “forced heirship” which means legitimate heirs – your spouse, your biological and adopted children, and your ascendants – are the only people who can inherit. An heir will be entitled to a minimum of 50% of the whole estate. If there is more than one legitimate heir, this figure rises to 60%. The remainder of the estate can be distributed as you see fit.

Under Portuguese law there is no inheritance tax (IHT) levied on any part of your estate when it passes to a legitimate heir. In the UK, the standard rate of IHT is 40% on all wealth above the threshold limit (currently £350,000).

As a resident in Portugal, you can take advantage of the zero IHT rules applicable when your estate passes to a legitimate heir. While any part of your estate which passes to a non-legitimate heir will be subject to a flat-rate 10% stamp duty, known as Imposto do Selo, on Portuguese assets.

It’s also important to understand that lifetime gifts in Portugal will be subject to taxes such as property tax and capital gains tax if the estate is sold.

Non-Habitual Residents and tax advantages in Portugal

As a new expat in Portugal (or if you have not been a Portugal resident for the preceding five years) you can apply for non-habitual resident (NHR) status which means you will benefit from certain tax reductions and exemptions which are very favourable.

NHR status lasts for ten years and provides tax exemption on lifetime gifts and inheritance to legitimate heirs, no wealth tax, flat-rate tax (currently 20%) for some Portuguese income from certain professions, and tax exemption on almost all foreign income.

No man is an island

While we’re quoting famous people (that one belongs to John Donne), it’s true that humans usually do best when working together and that to make the most of things, to thrive, we often need help.

Understanding the complexities of death and taxes in Portugal is something that may be difficult for one person alone, so it’s always best to seek help, advice and to rely on the skill of others when attempting to negotiate life’s difficult inevitabilities.

Contact the Blacktower team in Portugal today.

Disclaimer: Blacktower Financial Management is not a tax adviser and independent tax advice should be sought. The above does not constitute advice