Inheritance Tax: A Comprehensive Guide for Estate Planning in Portugal

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Inheritance Tax: A Comprehensive Guide for Estate Planning in Portugal

by | Monday, 26 June 2023 | Other, Personal Income Tax

Inheritance Tax: A Comprehensive Guide for Estate Planning in Portugal

Introduction

Inheritance tax, also known as estate tax or death duty, is a financial obligation that arises upon the transfer of property from a deceased individual to their beneficiaries. In Portugal, the Tax and Customs Authority oversees the reporting and collection of said tax. Understanding the rules and procedures surrounding taxation on inheritance is essential for effective estate planning. This comprehensive guide will explore the key considerations and regulations associated with inheritance tax in Portugal.

Reporting the Death and Declaring Liability to Stamp Duty

The first step in the inheritance tax process is reporting the death of an individual to the Tax and Customs Authority. It’s important to note that this step is only necessary if the deceased person has bequeathed the property to be transferred. The estate executor must do the reporting and is responsible for handling all matters relating to the estate until its distribution. The executor can be the widow or widower, the administrator of the will, the closest statutory heir, or a testamentary heir.

The death and liability to stamp duty must be reported to the Tax and Customs Authority by the end of the third month following the month in which the death occurred. For example, if the person died in March, the death must be reported by June 30th. To declare liability to stamp duty, the executor must submit several documents, including a completed form, a list of assets comprising the estate, the death certificate, civil identification documents and tax identification numbers of the deceased and heirs, and any relevant wills or deeds of gift.

Exemption from Inheritance Tax

Specific individuals may be exempt from paying inheritance tax in Portugal. The exemptions apply to the widow or widower (including life partners), ascendants (parents and grandparents), and descendants (children and grandchildren). It’s important to note that these exemptions only apply if the responsibility for paying inheritance tax falls on the exempt individuals.

Levy on the Transfer of Property by Inheritance

If there is no exemption from payment of inheritance tax, a levy of 10% applies to the transfer of property by inheritance. This rate applies to the value of the property being transferred. It’s crucial to carefully consider the implications of this levy when planning an estate, as it may impact the distribution of assets and the financial well-being of beneficiaries.

Understanding the Assets Subject to Taxation

Taxation on inheritance in Portugal applies to various types of assets, including:

  1. Bank accounts: Any funds held in bank accounts are subject to inheritance tax.
  2. Investment funds: The value of investment funds is included in the inheritance tax calculation.
  3. Shares and savings certificates: The ownership of shares and savings certificates are considered when determining inheritance tax liability.
  4. Retirement savings plans and life insurance: These assets are also subject to inheritance tax.
  5. Precious metals: Gold, silver, precious stones, and other valuable metals or gemstones are included in the inheritance tax assessment.
  6. Vehicles, furniture, and other personal property: The value of vehicles, furniture, and other personal belongings may contribute to the overall inheritance tax liability.
  7. Immovables: Buildings and land are significant assets impacting inheritance tax calculations.

Seeking Expert Advice for Estate Planning

Given the complexities surrounding such taxation and estate planning, it is highly recommended to seek the guidance of legal and financial professionals. These experts can provide invaluable assistance in navigating legal requirements and ensuring that assets are distributed according to your wishes. By partnering with professionals specialising in estate planning, you can gain peace of mind and confidence in managing your assets and protecting your loved ones.

Foreign nationals and taxation in inheritance

The EU succession regulation, known as ‘Brussels IV’, which came into force in 2015, establishes that the succession law of your residence country applies by default upon your death.

Nevertheless, non-nationals can choose the succession law of their nationality over the default rule, hence bypassing Portuguese compulsory inheritance. It’s crucial to clarify this choice in your will or a similar legal instrument, as your family cannot make it posthumously.

Despite Brussels IV being an EU regulation, it applies to any person residing or possessing assets in any of the participating nations within the bloc, regardless of their EU citizenship. And though Brussels IV is strictly related to succession law – it does not provide you with the right to select the nation that can tax your estate. Furthermore, navigating Brussels IV can be complex and may lead to unintended tax consequences; thus, it is recommended to thoroughly evaluate all potential alternatives to determine the most beneficial approach for you and your beneficiaries.

Conclusion about Inheritance Tax

Taxation on inheritance in Portugal is a significant consideration in estate planning. Understanding the reporting and liability declaration process, exemptions, and the assets subject to inheritance tax is crucial for effective estate management. By seeking expert advice and carefully planning your estate, you can ensure a smooth transition of assets and minimise the financial burden on your beneficiaries. Take the time to assess your unique situation and consult with professionals to develop a comprehensive estate plan that aligns with your goals and priorities.

Please note that the information provided in this article is for general informational purposes only and should not be considered legal or financial advice. It is always recommended to consult with a qualified professional for personalised guidance tailored to your specific circumstances.

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