Succession planning makes it possible to organise the transfer of assets in advance, respecting the owner’s wishes, the heirs’ rights and the tax consequences applicable in Portugal.
This process goes far beyond deciding who will receive certain assets. Proper planning can help avoid family conflicts, unwanted divisions of property, difficulties in running businesses, deadlocks in the division of the estate and tax costs that could have been anticipated.
Although succession rules apply throughout Portugal, planning is particularly relevant in the Algarve because of the dynamism of the property market, the value of properties and the frequent presence of owners, investors and families with ties to different countries.
The right time to plan is while there is still time to assess alternatives and put the necessary solutions in place.
What is succession planning?
Succession planning consists of analysing in advance how assets should be transferred on death.
It may cover:
• real estate;
• bank accounts and investments;
• shareholdings;
• family businesses;
• receivables;
• intellectual property rights;
• assets of particular economic or family value.
The aim is to organise the transfer of assets in a way that is legally valid, tax-efficient and compatible with the heirs’ rights.
Who should consider a succession plan?
Succession planning is especially important when:
• there are significant real estate assets;
• there are several heirs or children from different relationships;
• one of the heirs is financially dependent on the owner of the assets;
• there is a family business or shareholdings that need protecting;
• certain assets or properties should be kept together;
• there are properties or assets spread across several countries;
• the owner lives outside their country of nationality;
• the aim is to prevent conflicts between heirs;
• the aim is to ensure continuity in the management of a business.
These situations are particularly common in the Algarve, where many owners hold significant real estate assets and maintain personal, family or economic ties with other countries.
| Important note: you do not need to have a very large estate. A single property passed on to several heirs may be enough to create deadlocks and future difficulties. |
Legal limits on disposing of assets in Portugal
In Portugal, the freedom to dispose of one’s assets has legal limits that cannot be ignored, regardless of where the assets are located.
The spouse, descendants and, in certain situations, ascendants are forced heirs.
This means they are entitled to a share of the estate, called the reserved portion (legítima), which cannot be removed by will or by lifetime gifts.
When the spouse and children inherit together, the reserved portion is, as a rule, two thirds of the estate.
Gifts or testamentary provisions that exceed the disposable portion and encroach on the reserved portion may be reduced after death.
Any succession plan should therefore start by identifying the forced heirs and determining the disposable portion.
Legal instruments for organising the transfer of assets
The right solution depends on the composition of the assets, the family structure and the objectives pursued.
| Instrument | Practical application and objectives | Impact and limitations |
| Will | Allows you to decide the destination of the disposable portion and to allocate specific assets or rights to certain heirs or legatees. It can also be used to benefit someone within the legal limits or to appoint an executor. | Without a will, the general rules of intestate succession set out in the Civil Code apply automatically. |
| Lifetime gifts | Allow the transfer of certain assets to be brought forward, the ownership of properties to be organised and the size or complexity of the future estate to be reduced. | They take effect immediately and must be analysed in light of the rules on the reserved portion, collation and the possible reduction of excessive gifts. |
| Gift with reservation of usufruct | The owner can give away the bare ownership of an asset while reserving the usufruct, continuing to use the property or receive the rent from it. | Although useful for keeping the economic enjoyment of the asset, it reduces future freedom to dispose of it. |
| Business organisation | Allows you to define who will manage the business, who will receive the shareholdings and how heirs who are not involved in the business will be protected. | Helps avoid fragmentation of the share capital. Without planning, a functioning company can become deadlocked between several heirs. |
Tax impact of succession planning
Transfers free of charge, including inheritances and gifts, are subject to specific tax rules in Portugal, namely Stamp Duty.
| Situation | Tax treatment |
| Spouse or unmarried partner, descendants and ascendants | Exempt from the 10% Stamp Duty applicable to transfers free of charge. |
| Other beneficiaries | Siblings, nephews and nieces or third parties are, as a rule, subject to the 10% rate. |
| Gifts of real estate | Stamp Duty at 0.8% may also apply, even when the beneficiary is a spouse, unmarried partner, descendant or ascendant. |
| Tax alert: the tax exemption does not remove the obligation to declare and report the assets to the Tax Authority. |
Future tax consequences should also be analysed, namely on a subsequent sale of the assets received, the taxation of capital gains, the transfer of shareholdings or the reorganisation of the assets.
International successions and assets in the Algarve
Succession planning is even more important when there are:
• heirs living in different countries;
• assets located in several States;
• owners with more than one nationality;
• people living in a country other than that of their nationality.
These situations are common in the Algarve, where many foreign owners hold properties or investments and keep their residence, family or other assets in other countries.
Within the EU, the general rule is that the law of the State of the deceased’s habitual residence at the time of death applies.
However, under certain conditions, a person may expressly choose for their succession to be governed by the law of the State of their nationality.
This choice can avoid uncertainty about the applicable law. It does not, however, resolve every tax issue, as taxation still depends on the rules of each State involved.
Main risks of not planning your succession
The absence of a succession strategy may lead to:
• automatic application of legal rules that do not reflect the owner’s wishes;
• unwanted co-ownership between several heirs;
• disputes over the use or sale of properties;
• deadlock in the management of companies and family businesses;
• the need for inventory proceedings;
• the sale of assets to pay charges or compensate heirs;
• unexpected tax and administrative costs;
• succession procedures in several countries.
Planning does not eliminate every problem, but it allows them to be anticipated and significantly reduces the risk of future conflict.
URB Law Services: legal support for succession planning in the Algarve
At URB Law Services, we assist Portuguese and international clients in organising, protecting and transferring their assets.
From our office in Almancil, we provide legal support on succession planning, inheritances, wills, gifts and estate divisions in Portugal.
We can help to:
• identify the heirs, their rights, the reserved portion and the disposable portion;
• analyse the legal and tax composition of the assets;
• prepare or review wills;
• structure gifts and reservations of usufruct;
• organise the transfer of properties and shareholdings;
• prepare continuity mechanisms for family businesses;
• review articles of association and shareholders’ agreements;
• analyse the tax consequences of the solutions under consideration;
• coordinate situations involving assets, residence or heirs in different countries;
• prepare the choice of law applicable to the succession, where permitted;
• assist with the procedures for establishing heirs, tax reporting and division of the estate.
A succession plan should be tailored. The right solution depends on each person’s family, assets, residence, nationality and objectives.
Anticipating these decisions makes it possible to protect assets and avoid conflicts that become much harder to resolve after death.
Contact URB Law Services in Almancil for legal support on succession planning, inheritances and the transfer of assets in the Algarve.
