Inheritance tax in Portugal is different from many countries. Instead of “traditional” inheritance tax, they tax inheritance and gifts on stamp duty. The tax rate required (10% or 10.8%) depends on the closeness of the receiver and the asset.
Understanding Portuguese Succession Laws and Forced Heirship
Portuguese law enforces forced heirship. This means that a portion of your estate automatically goes to protected heirs like your spouse, children, and direct ascendants regardless of your will.
However, the 2015 EU Succession Regulation (Brussels IV) allows expats to bypass this by choosing their nation’s law for their will.
For example, someone from the UK can apply UK laws to their estate in Portugal, eliminating forced heirship rules. This must, however, be mentioned explicitly in the Portuguese will.
Just note, though, that Portuguese taxes still apply to Portuguese assets.
What Is Stamp Duty in Portugal?
Stamp duty in Portugal is the country’s inheritance tax, applied to asset transfers via inheritance or gifts.
There are two stamp duty rates for non-immediate family:
- Most inherited/gifted assets have a flat fee of 10%.
- For real estate transfers, standard stamp duty plus 0.8%.
Close family, such as sources, children (and grandchildren), parents (and grandparents), are exempt from the 10% stamp duty tax.
Unlike some countries, this tax is also charged per individual based on what they receive, not on the overall estate.
Alongside this, stamp duty in this country is territorial. Therefore, it only applies to assets in Portugal. Assets outside of Portugal, like a house in the UK or investments in the US, aren’t subject to Portuguese stamp duty. There are ways to mitigate any Portuguese liability by using Portuguese compliant bonds.
Gift Tax in Portugal
There isn’t a separate “gift tax for Portugal”. It follows the same stamp duty system. Therefore, it only applies to assets in the country, close family are exempt, and gifted assets will be taxed between 10% or 0.8%.
UK Inheritance Tax and Double Taxation Considerations
If you’re a UK national living in Portugal, you may still face UK inheritance tax (IHT) based on domicile status, not just residency.
UK-domiciled individuals (even long-term expats) face a 40% IHT on worldwide assets above the suggested £325,000 threshold. This tax applies alongside any Portuguese stamp duty tax.
There is a double taxation treaty between the UK and Portugal, however, it doesn’t cover inheritance tax specifically. The UK offers unilateral relief or concessions in some cases, so you can credit the foreign tax against a UK tax bill.
Also, you can change domicile to Portugal, but the process is extensive and complex. It’s only recommended for those wanting to stay in Portugal permanently.
Ensuring a Smooth Inheritance Process
Stamp duty is the inheritance and gift tax in Portugal. However, it doesn’t apply to immediate family. It only applies to non-immediate family.
Even then, you need to be very careful about double taxation. The UK, for instance, can require a 40% IHT tax on worldwide assets, including those in Portugal that may be subject to a 10% stamp duty tax.
Estate planning strategies and compliant investment structures like Portuguese compliant bonds can help ensure a smooth, tax efficient transfer of wealth. These investments are usually held in secure jurisdictions outside of Portugal, meaning they are not subject to Portuguese inheritance tax. They also allow the funds to pass directly to nominated beneficiaries without the need for probate, simplifying an already difficult situation.
