Many foreigners have chosen to live or to buy holiday homes in this wonderful country. But how many have reviewed their estate planning to protect these Portuguese assets? The future has never been so uncertain during the current Covid-19 pandemic, so there has never been a more appropriate time to ensure all your paperwork is in order!
In last week’s Algarve Resident, Sovereign Group chairman Howard Bilton explained ways in which UK nationals can protect their assets for future generations and minimise their worldwide estate taxes.
Before 2015, Portuguese law recognised the deceased’s national succession law, but then EU Succession Regulation (EU 650/2012) – known as Brussels IV – was introduced with the aim of unifying succession laws across EU member states. The resulting default position is that it is the law of the deceased’s country of residence that applies to assets held in EU member states – excluding the UK, Denmark and Ireland, which all opted out.
However, individuals can choose whether the law of their country of residence or the country of their nationality applies to their succession, providing that they declare their intentions in their will. A foreign will is accepted in Portugal with a Grant of Probate, but it is also advisable to have a Portuguese will to cover your assets in Portugal to facilitate this process.
If a foreign resident dies in Portugal without a will of any kind, Portuguese inheritance law applies – and that means ‘forced heirship’. This guarantees that a portion of the estate is automatically left to the deceased’s legally recognised heirs – the spouse and children, or the deceased’s parents if there are no children. If any children are predeceased, then their grandchildren will inherit, followed by the deceased’s siblings, their children and so on up to the fourth degree. If there are no heirs, the estate passes to the Portuguese state.
Whilst the country where the death occurred will be responsible for the inheritance process, there are international treaties covering inheritance tax. As Howard Bilton explained in his article, UK expats can be liable for some penal taxes and should therefore plan in advance how to avoid or minimise these.
The good news is that Portugal abolished inheritance tax between spouses, parents/grandparents and children/grandchildren in 2004, and for other family heirs there is a flat rate of 10% stamp duty payable (plus 0.8% in the case of property).
Dealing with a death can be traumatic in itself without the family having to wade through a bureaucratic quagmire in a foreign language, so the appointment of a lawyer here is advisable.
A death in Portugal must be declared within 48 hours at the local Conservatória do Registo Civil or at the IRN – Espaços dos Registos found in some Citizen Shops. The ‘Habilitação de Herdeiros’ document, which identifies the heirs, the assets and their division may be required in order to access bank accounts and other matters.
If the deceased had assets in Portugal, the tax department must be informed of the death by the end of the third month after the month in which the death occurred – e.g. a death in January must be reported by the end of March. Reporting must be made by the ‘Cabeça de Casal da Herança’, which will be one of the following in order – the spouse if an heir, the will executor, closest family heirs, heirs from the will, the heir that lived with the deceased or the oldest. Equally, heirs can agree to nominate someone.
Heirs must have a Portuguese fiscal number and, if they reside outside the EU, must appoint a fiscal representative. Sovereign works with lawyers nationwide to provide these services, ensuring heirs are fiscally compliant in Portugal. If heirs subsequently wish to rent or sell any property in Portugal, Sovereign can apply for the rental licences, complete registrations, prepare accounts and submit tax returns relating to rental income or capital gains.
Historically, many properties in Portugal are not legally compliant. Extra divisions or swimming pools were added or garages turned into annexed apartments, without the alterations being registered with the relevant authorities. We see many clients who have discovered that their inherited property is not fully legal. Rectifying such irregularities can lead to a lot of stress and unexpected expense.
A Sovereign Property Health Check will provide a thorough search of a property title to establish whether it is in good order or to discover defects that could be a bar to a successful sale or rental. This check gives property owners time to put things right and includes provision of a complete dossier with the documents needed for an estate agent or the lawyer of a potential buyer.
Nobody likes to think about their own mortality, so it often feels easier to leave things as they are and do it ‘tomorrow’. Sadly, in today’s world this is no longer an option. For peace of mind and to keep your documentation in good health, speak to Sovereign to see how we can help.
Contact [email protected] or visit www.sovereigngroup.com to see the range of Sovereign offices worldwide and how they can help with your succession planning.
The information provided in this article does not constitute advice and no responsibility will be accepted for any loss occasioned directly or indirectly as a result of persons acting, or refraining from acting, wholly or partially in reliance upon it. © Sovereign Media (IOM) Limited 2020