Ensure a tax-efficient inheritance for your family.
Written by Stephen Rankin, Director of Special Clients, Blevins Franks.
You likely took the time to financially plan to provide yourself with a secure future throughout retirement. Would you do the same for your future heirs? Do you have strategic estate planning to ensure the right money reaches the right people at the right time, with as little tax as possible? A good start is to ask some basic questions.
Who will get your assets and wealth?
Unlike the UK, where you are free to leave your property to whomever you choose, Portugal’s “forced succession” law of succession determines how assets are transferred. For residents of Portugal, this means that your spouse and immediate family can automatically inherit at least half of your worldwide property, even if you wish to pass the wealth on to other beneficiaries.
Prior to 2015, the default was that the law of your country of origin applied to your property, which worked well for expats in the UK. Now, under the EU “Brussels IV” regulation, forced Portuguese inheritance is applied automatically.
However, you can choose to bypass forced inheritance by specifically nominating relevant UK law in your will. You have to do this in advance. It is not something your heirs can arrange after your death. Take cross border advice before doing this, to understand all the pros and cons and decide what is best for your family.
What will your legacy be spent on and when?
You may want to establish some control over when your heirs receive your inheritance and how they can use it, without incurring an expensive and lengthy probate process.
It is possible to structure your capital in such a way as to provide you with effective tax benefits during your lifetime, while also demonstrating control and certainty after you are gone. This might enable you, for example, to delay the timing of an inheritance until your heirs reach an age at which they are likely to be financially mature. Ask your counselor about solutions that are appropriate for your family goals and circumstances.
Who will pay the tax on your property?
Unlike the United Kingdom, where inheritance tax is usually paid by the estate prior to a change of ownership, in Portugal each recipient pays the obligation.
The Portuguese equivalent of an inheritance tax – stamp duty – is relatively small in scope and cost. This only applies to assets such as real estate, vehicles and shares located in Portugal that are passed on as an inheritance or gift for life. Spouses and direct ancestors are not liable, but gifts to anyone else attract a flat rate of 10%, wherever they reside.
Those who remarry or have more complex families should note that the somewhat traditional Portuguese view of the family means that unmarried partners, stepfathers and stepchildren may face stamp duty on Portuguese assets inherited/endowed between each other. However, exemptions are available through measures such as adoption and proof of cohabitation.
As in Britain, inherited assets cannot be passed from one property to another before tax is paid, so some heirs may find it difficult to pay within the six-month deadline on the most valuable inheritance.
Will you attract UK inheritance tax?
Since inheritance tax liability in the UK is determined by place of residence rather than place of residence – and domicile is an incredibly ‘sticky’ concept – it still affects many Brits who live here. Those who are inherited face a 40% British inheritance tax on their worldwide estates, plus Portuguese stamp duty on assets here (although measures are in place to prevent double taxation of the same assets).
House law is very complex, so get professional advice to determine your situation and plan accordingly.
What about your own needs?
Even though you want the best for your heirs, make sure you can enjoy your wealth in the meantime, and that it’s available when you need it. The trick is making sure the right money gets into the right hands at the right time, while still achieving your retirement goals. Look for opportunities that are Portuguese compatible and that allow you to make the most of what you have, and provide tax benefits during your lifetime as well as for your future heirs.
Estate planning is a complex field, especially when you have to consider the rules of the two countries and how they interact. Get expert, personalized advice to feel the peace of mind that you have the most convenient and tax-effective approach for you and your chosen heirs for years to come.
Madeira Consulting | September 26-29
Blevins Franks advisor Stephen Rankin will be in Madeira from September 26-29. If you would like to arrange a meeting with him while he is away to discuss any estate planning, taxes, pensions or investment concerns, you can contact him at email@example.com or 214 819 999.
Tax rates, scope, and exemptions may change. Any statements relating to taxation are based on our understanding of current tax laws and practices, which are subject to change. Tax information is summarized. Individuals should seek personal advice.
Blevins Franks Wealth Management Limited (BFWML) is authorized and regulated by the Malta Financial Services Authority, registered C 92917. It is authorized to conduct investment services under the Investment Services Act and licensed to carry out insurance brokerage activities under the Insurance Distribution Act. Where advice is given outside Malta through the Insurance Distribution Directive or the Markets in Financial Instruments Directive II, the applicable regulatory regime differs in some respects from that of Malta. BFWML also provides tax advice; Its tax advisors are fully qualified tax professionals. Blevins Franks Trustees Limited is authorized and regulated by the Malta Financial Services Authority to manage trusts, pension plans and companies. This promotion has been approved and released by BFWML.
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