Is it necessary to have a Portuguese Will?
The purpose of a will is to communicate your wishes as to what will happen to your personal possessions after you die. It is a written legal document setting out the people you would like to inherit specified parts of your estate.
It is recommended that most people make a will so that they may specify who they want to inherit their estate and to avoid the complicated intestacy procedures necessary where there is no will.
The laws in relation to wills and inheritance in Portugal are very different to those in the jurisdiction of England and Wales. If you have assets in both Portugal and England, these differences will need to be carefully considered when you are preparing a will whether in England or in Portugal.
Portuguese law does recognise a will that has been prepared in another country and therefore Portuguese assets could be dealt with together with your English assets under a carefully drafted English will. However, it is usually recommended to make a separate Portuguese will dealing with your assets in Portugal, You should always consult a specialist lawyer to advise you as to what is best for you in your individual circumstances.
If both Portuguese and English wills are prepared each will can independently deal with their respective assets in each country avoiding delays and complications. This can make it significantly easier for your loved ones to deal with the administration of your estate on your death and could reduce both the costs and the associated hassle.
You will however need to ensure that the wills do not conflict or revoke one another and that they work together to achieve the intended result. You should therefore ensure that any lawyer you instruct to prepare a will whether in Portugal or in the UK is aware of the contents of any other will that you have.
Who will inherit my Portuguese Assets?
Under English law anyone making a will has “testamentary freedom” which means that you can choose whoever you want to inherit your estate and in whatever proportions as long as you set this out in a valid will.
Portugal has a system of forced heirship which means that under Portuguese law certain portions of a person’s estate must be left to particular relatives and this can not be overridden by their will.
Portuguese law does however allow for the national law of the person making the will to apply. Therefore an English national would usually have testamentary freedom in their will accordance with English law. It is therefore possible to avoid forced heirship provisions by means of a valid will.
The most effective way to ensure that English law applies is to make a Portuguese will in relation to your assets in Portugal, specifying that you wish English law to apply to your Portuguese estate.
Will there be inheritance tax to pay?
This will depend on a number of factors and your personal circumstances.
As a general rule, if you are “domiciled” in the UK at the date of your death your estate will be liable to UK inheritance tax (IHT).
IHT is charged in the UK at 40%, however, everyone is entitled to a tax free amount (also known as the “nil rate band”) which is currently £325,000 (or up to £650,000 for married couples and registered civil partners if the “transferrable nil rate band” applies). This means that the combined value of your worldwide estate is calculated and only the amount that is over the tax free amount will be taxed at 40%. The tax is paid from the assets in the estate before they are distributed to the beneficiaries.
The question of whether or not a person is domiciled in a particular country for inheritance tax purposes is an extremely complex one. You should always obtain expert legal advice to ensure you understand how this will be dealt with on your death so that you can obtain the intended results for your beneficiaries.
Your “worldwide estate” includes the value of your English and Portuguese assets and any assets that you may have in any other country. It may also include certain gifts that you have made in the last 7 years.
There may be some exemptions or reliefs available in respect of the amount of IHT payable depending on who your beneficiaries are and the nature of your assets. Your lawyer will be able to advise you as to what would be applicable in your circumstances.
If you are not domiciled in the UK, UK inheritance tax will only apply to your assets that are located in the UK.
Inheritance tax in Portugal was revoked in 2004 and gifts and inheritance instead became subject to Stamp Duty. Stamp Duty is applicable to assets located in Portugal. Gifts and Inheritances received by close relatives such as spouses, children and parents are exempt from Stamp Duty. Where it applies it is charged at 10% and is payable by the beneficiary.
It may be that both IHT and Stamp Duty is payable in one estate however it may be possible to offset some of the IHT paid in the UK against Portuguese Stamp Duty.
Succession tax planning is extremely important if you want to ensure your beneficiaries get to keep as much of their inheritance as possible. Professional advice and careful planning can often make a significant difference to the amount of tax payable.You should always ensure that you get proper specialist advice in relation to your individual circumstances. Your lawyer can discuss inheritance tax planning with you as part of the preparation of your will.