Inheritance tax and law
July 21, 2011
The Global Property Guide looks at inheritance from two angles: taxation, and what inheritance laws apply to foreigners leaving property in Portugal: what restrictions there are and whether making a will is advisable.
How high is income tax on residents in Portugal?
No inheritance or gift taxes are levied in Portugal.
Stamp Tax (Imposto sobre as Sucessồes e Doaçồes)
Instead, stamp duty is payable at a flat rate of 10% for gratuitous transfers, but transfers to spouses, descendants and ascendants, are exempt.
Thanks to BARROCAS SARMENTO NEVES - Claudia Santos Cruz
What inheritance laws apply in Portugal?
The law of the deceased's nationality applies to inheritance.
The main laws regulating inheritance are the Portuguese Civil Code, fifth book (articles 2024 to 2334) and book one (articles 62 to 65).
The inheritance process in Portugal is generally governed by the laws of the deceased's nationality, thereby avoiding potential conflicts of law; however, if spouses have different nationalities, Portuguese law determines that the national law of the country where they both usually reside is applicable. In the absence of a usual place of residence, Portuguese law provides that the applicable law is that of the country where both spouses have a close family connection.
In certain circumstances, the law of the country where the property is located may become applicable. For example, if the deceased was an owner of property in Portugal, and the law of his/her nationality or residence determines that the law of the country where the deceased's property is located takes precedence, then Portuguese inheritance law becomes relevant.
All inheritance issues concerned with residents and non-residents, including disputes relating to property located in Portugal, and those outside Portugal where Portuguese law applies, are brought before the Portuguese civil courts. Inheritance cases usually take from 1 to 2 years to resolve, depending upon the value and complexity of the assets in the deceased's estate, the number of heirs and their behaviour. If disputes are numerous and continuously challenged, the court decision process may take longer.
A portion of the estate must be distributed to legitimate heirs.
Legitimate heirs include the spouse, biological descendents, adopted children, and ascendants of the deceased. The reserved portion generally covers a minimum of 50% of the whole estate, but this can be exceeded, as illustrated by the following:
- Spouse's portion: 50%
- Spouse and Descendents: The reserved portion is 60%; normally distributed per capita. If more than 3 children inherit, the spouse is entitled to 1/6th, and 50% is distributed between the descendents.
- Only Descendents: The reserved portion depends on the number of children. For one child it is 50%, for two or more it is 60%.
- Spouses and Ascendants: 60% distributed per capita, as 4/9th for the spouse and 2/9th for the ascendants
- Only Ascendants: 50% for those of first degree; 1/3 for second degree or more.
The reserved portion must always be respected whenever possible, irrespective of the terms of a will or the intentions of the deceased.
If there is no will, and no spouse, ascendant or descendant, the estate passes to the siblings and their descendents, other collateral family up to the fourth degree, and finally to the State. Each subsequent class of heirs is only called upon if the previous class is not present.
Outside the reserved portion, the testator's freedom to leave the estate by will as he wishes is virtually unlimited, though certain persons cannot inherit e.g. those deemed to be ineligible or unworthy, the deceased's last treating doctor, the priest of the community where he attended, or a curator, tutor, or administrator of the deceased.
It is normal practice in Portugal to make a Will.
A will is likely to be made especially by a person who wishes to nominate someone (e.g. a friend) who is not a legitimate heir, and who would otherwise not be entitled to inherit. A person may also justify in a will that, due to unworthy behaviour, a particular beneficiary should be excluded from their part of the reserved portion, although challenges may subsequently be accepted by the court. There are two types of will in Portugal:
- A Public Testament, which may be made before a public notary and is kept in a vault, and
- A Closed Testament, which is made privately, signed by the author and then subject to the notary's review.
Usually a local will is not necessary, since Portuguese law provides that inheritance issues are governed by the deceased's national law. A will made in the deceased's country should generally suffice; however when Portuguese courts have jurisdiction over the inheritance, then problems may arise if the deceased's will is not clear (e.g. due to problems of interpretation, or if it has not been updated). In such cases, the courts will strictly apply the law, even if that precludes the constitution of certain people as heirs, which was the deceased's initial intention. It is advisable, therefore, to ensure that the will is drafted clearly and precisely, and regularly updated to avoid raising doubts in the judge's mind.
Property may be gifted by the owner before death.
- Unrestricted donations of property by an owner during his/her lifetime are legally permitted in Portugal, subject to the payment of relevant taxes, and to the owner taking into account and respecting the reserved portion of his/her estate. The owner should calculate how much of his/her estate can be disposed of, leaving sufficient to cover expenses, and to leave the reserved portion to legitimate heirs. The Civil Code calculates the value of an estate from the following data:
- Donated/gifted asset value (Donated Value);
- Existing assets at the time of death (Existing Assets)
- Expenses relating to administration of the estate
- Estate debts
The most straightforward method of calculating the value of an estate is to subtract the Expenses from the Existing Assets and then add the Donated Value. If the Donated Value is higher than the Existing Assets, then the Donated Value may, subject to certain conditions, be officially reduced, even in respect of gifts/donations made during the lifetime of the deceased.
A property owner should also be aware that the rights of use and habitation (i.e. permitting someone to live in his/her property) are non-assignable; a family home is partially non-assignable, since this may be subject to family/matrimonial legislation.
Ownership of property must be registered.
To determine the ownership of property Portuguese law looks at the names in the respective official registries. The named registered owner is assumed to be the real owner. One exception to this rule is the concept of ownership by adverse possession, i.e., acquisition of title through the elapsing of time. If someone, who is not the registered property owner lives in a property for a minimum period of time (20 years) as if they were the real owner, then it may be assumed under Portuguese law that he/she is the property owner. This assumption can be challenged by the real owner, if evidence is presented to show the situation is otherwise.
A guardian must be appointed to act on behalf of minors.
Property inherited by minors or other persons not of legal age may be registered in the name of the minor in the Public Registry; however minors do not have the power to administer property until they reach legal age. A guardian may be appointed from the immediate family provided he/she has capacity to perform the relevant guardianship duties. If no one in the immediate family is available the court can appoint an independent person to fulfil the task.