As a UK expatriate residing in Portugal, navigating the inheritance tax is no easy walk in the park. While Portugal offers an attractive lifestyle and favourable tax environment, failing to plan ahead could result in a significant portion of your hard-earned assets being eroded by inheritance taxes. It's crucial to understand the implications and explore strategies to minimise your tax burden.
What is Inheritance Tax in Portugal?
Inheritance tax in Portugal, known as "Imposto Sobre as Sucessões e Doações" (ISD), is levied on the transfer of assets upon death or through gifting. The tax rates and exemptions vary depending on the relationship between the donor and the recipient, as well as the value of the assets being transferred.
For UK expats in Portugal, it's essential to understand the interplay between Portuguese and UK inheritance tax rules, as your domicile status can significantly impact your tax liability.
Domicile Status and Inheritance Tax
Your domicile status (not the same as your residency or citizenship) plays a crucial role in determining your inheritance tax obligations. If you're considered UK-domiciled, you may be subject to UK inheritance tax on your worldwide assets, even if you're residing in Portugal.
Conversely, if you've established a non-UK domicile status, you may only be liable for UK inheritance tax on UK-based assets. Meanwhile, Portuguese inheritance tax would apply to your assets located in Portugal.
How to Reduce Your Inheritance Tax Liability as a UK Expat in Portugal
It pays to work with a financial advisor. However, the following strategies can help minimise your tax burden:
Gifting: In Portugal, gifts between spouses or direct descendants (children and grandchildren) are exempt from inheritance tax. However, for other recipients, tax may be applicable, and it's crucial to adhere to the gifting rules and time limits.
Trusts: Setting up trusts can be an effective way to remove assets from your taxable estate. However, it's essential to seek professional advice to ensure compliance with both Portuguese and UK trust laws.
Life Insurance: Investing in life insurance policies can provide a tax-efficient way to transfer wealth to your beneficiaries upon your passing.
Retirement Planning: Proper retirement planning, including the use of tax-advantaged accounts like Portuguese Pension Plans (Planos de Pensões), can help shelter a portion of your assets from inheritance tax.
Asset Structuring: Consulting with a financial advisor to explore asset structuring options, such as offshore holdings or company ownership, may help minimise your inheritance tax exposure.
Professional Guidance is Key
At International Wealth Ventures, our experienced team of financial advisors specialises in helping expats navigate cross-border tax and estate planning. Don’t hesitate to contact us for a no-obligation consultation.