When buying property in Portugal, it’s natural to consider exactly how your assets will pass to your relatives once you’re gone and may play a crucial role in solidifying your decision to purchase altogether. After all, acquiring property assets to pass down to your family may be of some significance to you and the legacy you wish to leave your loved ones. It’s important to be aware of the inheritance process including inheritance tax in Portugal and ensure that everything is in place to make for a smooth asset transition.
Does Portugal have inheritance tax?
No, Portugal doesn’t have an inheritance tax, as is the case in other countries. While in the UK, inheritance tax is charged at 40% for any part of the property above the threshold of £325,000, Portugal estate tax doesn’t apply when passing to direct heirs, if Portugal is classed as your official domicile. This makes it a far simpler process to pass your assets on to your spouse, children or grandchildren once you’re gone. If you’re passing your assets to anyone else other than your direct ascendants or descendants, it will incur a 10% tax rate called Imposto de Selo, a bit like Stamp Duty, paid by the person receiving the asset.
Portuguese succession law
When buying assets in Portugal, whether it be real estate or moveable assets like cars, boats or works of art, if you are a Portuguese resident, the succession law forces heirship, dictating that a fixed portion of your estate will be automatically passed down to direct heirs. This means a minimum of 50% of your estate will automatically go to your living ascendants or descendants, if not otherwise stated in a legally binding document.
Fortunately, there is a way to override this. Since the Brussels IV regulation came into effect in 2015, you can make the decision for the succession law of your country of nationality to override Portugal’s forced heirship law, known as voluntary succession. If you opt for your country of nationality’s succession law to apply instead of Portugal’s, this must be clearly stated within your Portuguese will and cannot be instated by another individual following your passing. If there is no will or similar legal document in place from another country dictating who you wish to leave your assets to, the Portuguese legal succession will apply, automatically passing your assets to your direct legitimate heirs.
Who is classed as a direct heir?
It’s good to be clear on who is classed as a direct heir to avoid any confusion or disappointment for your relatives and close relations when it comes to passing on your real estate assets after your death. Direct heirs are spouses and children including biological and adopted and in the absence of descendants, any ascendants, including parents and grandparents. If your assets are passed onto anyone other than your direct heirs, they’ll have to pay the 10% Imposto de Selo.
Check your country of domicile
In most cases, if you’ve lived in Portugal for a number of years, you won’t have to pay UK inheritance tax in Portugal. However, if you are classed as UK domiciled i.e. the UK is your permanent residence, you’ll pay UK inheritance tax on your worldwide assets, including those in Portugal. This would then mean that you’d pay 40% on your Portuguese assets above the threshold of £325,000. It’s crucial to ensure your estate planning is structured correctly to factor in available exemptions and allowances. Since the law is always adapting, it’s best practice to review your estate planning to ensure it’s up-to-date and in line with current legislation.
There are many factors that could mean you are UK domiciled even if you spend a large portion of your time in Portugal—for example, if your ‘permanent home’ is in the UK, or even if the UK is where you intend to be buried, you’ll be classed as UK-domiciled and your beneficiaries will be liable to pay UK inheritance tax on your worldwide assets. It is possible to take steps to select Portugal as your domicile of choice, although this can take up to four years or longer and is dependent on many factors, including whether you intend to live there permanently and no longer class the UK as your homeland. Domicile law can be complex, so it’s recommended to seek specialist advice from a reputable wealth management advisor.
FAQs About Inheritance Tax in Portugal
Imposto do Selo is a traditional tax in Portugal that dates back to 1660. This stamp duty tax is used across a number of legal actions, contracts and papers. From leasing to credit checks, leasing and inheritance transfers, Imposto do Selo must be paid by Portuguese Inheritance law. In the case of Inheritance Tax in Portugal, legal direct heirs are exempt from this Stamp Duty. If passing on to any other relatives who are not your direct heir, the rate of 10% Stamp Duty will be payable.
If you are UK-domiciled (considered a long-term resident in the UK), you will be liable to pay UK Inheritance Tax on property in Portugal since they will be classed as part of your worldwide assets. If you are domiciled abroad, you only pay Inheritance Tax on your UK assets.
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