Inheritance Tax in Portugal: Important Information for Property Owners and Heirs

Planning for the transition of assets to the next generation is an important aspect for many property buyers in the Algarve. If you decide to purchase a property in Portugal, it is crucial to deal with the inheritance matters and inheritance tax in the country. This article sheds light on the important aspects of inheritance tax in Portugal and shows what you need to consider.

1. Is there an inheritance tax in Portugal?

Unlike many other European countries, Portugal does not levy a classic inheritance tax. This means that you do not have to pay inheritance tax when bequeathing your assets to your direct heirs, such as children, spouses or grandchildren, if Portugal is considered the official primary residence of the testator and heir. This arrangement makes it particularly advantageous to pass on real estate or other assets to the family.

However, there is one exception: if the inheritance goes to people who are not direct heirs, such as distant relatives or friends, a tax of 10% (the so-called Imposto de Selo) is levied. This tax must be paid by the person who receives the inheritance.

2. What should be done in the event of an inheritance?

After the death of a property owner, the inheritance must be reported to the Portuguese Tax and Customs Authority (Autoridade Tributária e Aduaneira) by the end of the third month following the month of death. The following documents are required for the tax return:

• Death certificate
• Identification documents and tax identification numbers of the deceased and heirs
• Complete list of estate assets (real estate, bank accounts, stocks, etc.)
• Will or other relevant documents

The notification is usually made by the executor of the will or a legal heir.

3. Portuguese Inheritance Law and Intestate Succession

In Portugal, inheritance law follows a clear legal structure. When someone dies, a certain share of the assets automatically goes to the direct heirs, regardless of what is written in the will. As a rule, at least 50% of the estate must be passed on to direct descendants or parents. This means that in Portugal, legal succession takes precedence.

However, there is the possibility of objecting to this legal succession. Since the entry into force of the Brussels IV Regulation in 2015, you can decide whether the inheritance law of your home country applies instead of Portuguese inheritance law. However, in order to implement this, it must be explicitly stated in your Portuguese will.

4. Important considerations for tax liability in your home country

Your inheritance may also be affected by your home country's tax regimes. If you live in Portugal but your official residence is still recorded in another country, all your assets may be subject to inheritance tax in that country.

• Germany: German citizens are still subject to German inheritance tax five years after giving up their German residence. There are allowances that can be reused every ten years. Portugal and Germany do not have a double taxation agreement for inheritance taxes, so double taxation is possible.

It is therefore advisable to consult with a professional about tax implications, especially if you own assets in different countries.

5. Gifts as an alternative to inheritance

Many property owners consider transferring assets to the next generation by gifting them during their lifetime. Advantages of a donation:

• Avoidance of time-consuming probate proceedings
• Possibility to make optimal use of tax allowances in your home country
• Security and clarity in the transfer of assets
• Parents can reserve a lifelong right of residence and use in the gift contract

6. Estate planning tips in Portugal: recommendations for 2025

Since tax and legal regulations change regularly, it is advisable to review your estate planning regularly. You should pay particular attention to how your assets are distributed, whether you have a will and whether it is in line with current Portuguese laws, as well as clarifying your tax residency to avoid unwanted tax consequences.

Please also note that an inheritance changes the way in which the gain of a property is determined when it is sold. The actual purchase price is no longer used as a basis here, but the value determined by the tax office, which in practice is significantly below the market value. Accordingly, the taxable profit (otherwise: sales price – purchase price – relevant expenses) will usually be higher. You should also discuss this aspect with a specialist.

If you are a resident abroad but want to leave assets in Portugal, it may be useful to discuss the topic of "double tax liability" with an international tax advisor. This can help you avoid tax burdens and ensure that your inheritance tax is minimized.

7. Frequently Asked Questions (FAQ)

a.) As a Portuguese, do I have to pay tax on a property in Portugal if I inherit it?
No, if you are a direct heir (spouse, child, grandchild), there is no inheritance tax. However, if you are not part of the direct succession, stamp duty (Imposto de Selo) of 10% will be charged.

b.) How is the value of a property determined for tax purposes?
The value of a property is usually determined on the basis of the cadastral value (Valor Patrimonial Tributário) or the market value. In some cases, an official assessment by an appraiser may be required.

c.) How long does it take to process an inheritance in Portugal?
The duration depends on the complexity of the estate. In simple cases, the inheritance settlement can take a few months, while more complicated cases can take several years.

d.) What happens if I am not a resident of Portugal?
If you have your main residence in another country, your inheritance could be taxable there. In Germany or the UK, there could be additional taxes on your Portuguese assets.

e.) What are the costs of inheriting a property in Portugal?
In addition to possible tax payments, costs may be incurred for notaries, lawyers, land register changes and expert opinions. These vary depending on the case.

f.) Can I make a will in Portugal even though I am not a Portuguese citizen?
Yes, foreigners can make a will in Portugal. It is recommended to do this at a notary to ensure validity.

g.) Can I give away a property in Portugal to save taxes?
Yes, this can be a sensible strategy, especially for making the best use of allowances and avoiding estate disputes.

8. Conclusion: Early planning pays off

Inheritance planning in Portugal can be advantageous for direct heirs due to the lack of inheritance tax. Nevertheless, tax regulations in the home country should not be disregarded. The transfer of assets can be optimised through a well-thought-out strategy that also takes into account possible gifts and the use of tax-free amounts. Early advice from experts ensures that your estate is arranged according to your wishes and that tax burdens are minimised.

Note: This article is for informational purposes only and is not a substitute for tax or legal advice from a professional.