Estate planning is a high priority for many expatriates in Portugal. They want to ensure that their wealth is passed down to their family and heirs according to their wishes, that the inheritance process is as straightforward as possible, and that their heirs are not faced with high tax bills.
Living in Portugal makes this more complicated, as you have to deal with foreign rules and also the interaction of two countries’ succession laws and tax regimes (if your heirs are in the UK and/or you have assets in more than one country).
So will the UK’s decision to leave the EU affect estate planning in Portugal?
Brussels IV
Last year the new EU succession law, “Brussels IV” came into effect. Under this regulation, the succession law of country of habitual residence will apply to your assets when you die – and Portuguese succession law is restrictive. However you can override this by stating in your will that you want the succession law of your country of nationality to apply instead.
The good news is that although Brussels IV is an EU regulation, it applies to third party countries as well. Brexit therefore has no effect on the ability for British expatriates to use UK succession law.
Portuguese inheritance tax
One of the tax advantages of living in Portugal is that there is no inheritance tax. Instead there is stamp duty, which only applies to assets located in Portugal. The standard rate of stamp duty is 10%.
Tax is paid by the person receiving or inheriting assets. However, gifts and inheritances received by spouses and direct line descendants and ascendants are exempt. So your husband, wife, children and also parents will not have to pay tax when inheriting your Portuguese property.
This tax regime is based on Portuguese assets, and not nationality or country of residence, so nothing changes with Brexit.
UK inheritance tax and Brexit
UK domiciles in Portugal are liable to both Portuguese succession tax and UK inheritance tax. Although there is no specific double tax treaty on inheritance between Portugal and the UK, taxes already paid in one country can be deducted against taxes due in the other. There is no reason for this to change with Brexit.
Prior to the June referendum, the then Chancellor George Osborne had warned that taxes would probably have to rise if the UK left the EU and mentioned higher income taxes and an increase in inheritance tax from 40% to 45%. It appears that this idea may be completely shelved under the new Chancellor.
In conclusion, Brexit will have no effect on your estate planning in Portugal.
Your estate plan
Nonetheless, if you have not set up a detailed estate plan since moving to Portugal, or have not reviewed it in a few years, this is a good time to do so.
The first step is to establish your goals:
▪ Who would you like to benefit from your estate?
▪ Do you want them to have control over the money or not?
▪ How quickly would they need to be able to access the money?
▪ Or would you prefer to delay their inheritance until sometime in the future?
▪ What impact will inheritance tax have? What steps can you take to reduce this tax burden?
▪ Would you like to try and avoid probate on some of your assets?
▪ Can you simplify the inheritance process for your loved ones?
The next step is to take specialist advice; it is the only way to ensure you get it right.
Creating and maintaining a good estate plan is primarily about ensuring your wishes are carried out in the way you wish, but taking account of relevant legal and tax considerations. The plan needs to be flexible to accommodate events like more grandchildren, divorce, re-marriage etc. It is vital that you review it on a regular basis, so if you set up your plan years ago it will be time for a review.
Cross-border estate planning is complex, and needs to take multi-jurisdictional succession law, inheritance taxes and probate into account. There are compliant opportunities available in Portugal that allow you to do all this, and which provide significant tax advantages. This is a specialist area, so take professional, personalised advice to get it right.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; an individual should take personalised advice.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com
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