Tax planning is an integral part of effective wealth management, and taxation should be taken into account when making decisions about your savings, investments and pensions. Whether your main objective is to preserve your wealth, provide an income or generate growth, tax planning plays an important role in protecting and making the most of what you have.
While the tax tail shouldn’t necessarily wag the investment dog, there are numerous benefits to strategic tax planning, especially for expatriates with cross-border considerations.
Less tax for you
The most important benefit is probably to reduce your overall annual liability for income, capital gains and wealth taxes on your savings, investments, assets and pensions.
We all need to pay tax, but if there’s a more tax-efficient way to hold your capital and assets, shouldn’t you explore if it could work for you? Many people fail to do so and unknowingly pay more than necessary, such as capital gains tax when switching between investments.
Much depends on how you hold these assets, so investigate what compliant, tax-efficient arrangements are available in Portugal. You may be surprised by how much tax you can save each year. If you hold onto UK assets, you may miss out on more effective structures in Portugal that may provide other benefits like estate planning advantages and currency flexibility.
Less tax for your heirs
Of course, the less tax you pay in your lifetime, the more you have available to spend now or pass on to your heirs.
But with some investment structures, you may also be able to lower the inheritance tax liability for your heirs. Ideally, you want a solution that will limit inheritance taxes while also providing tax-efficient income and growth throughout your lifetime.
Estate planning benefits
A significant bonus of strategic tax planning can be that the arrangements you put in place also help make things easier for your family when you are gone. Many tax-efficient investment arrangements also offer more estate planning flexibility and control. For example, they may allow you to bypass succession laws on investment assets, and the capital can pass to your chosen heirs without the complications and delays associated with probate.
Some UK pensions are only transferable to spouses on death, but when transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvested in a suitable tax-efficient structure for Portugal, you could pass funds on to other chosen beneficiaries, often without probate.
Maximising returns
Effective tax planning plays a part in helping returns outpace the cost of living. Ultimately, what counts when assessing the value of investments are ‘real’ returns, after tax, expenses and inflation are deducted. If inflation is higher than your bank interest, you’re effectively losing money. And that’s before tax is added into the equation.
Property, to give another example, is often lauded for producing relatively high long-term returns, but with stamp duty, local rates, capital gains and wealth tax applied, tax liabilities can be large compared to other assets.
With investments, the starting point should be ensuring your portfolio is well diversified and suitable for your situation, goals and risk tolerance. But without suitable tax planning, returns can be diminished by taxes that could have been avoided or reduced.
If you own many different investments individually, moving them into a wrapper like a life assurance policy for the tax benefits also makes your life easier. With the investments consolidated into one policy, there’s less for you to manage, and less time wasted when completing your annual tax declarations.
Getting the best results
Tax planning should not be done in isolation or as an afterthought – make it a fundamental part of your investment, pensions, estate planning and overall wealth management strategic plan. Schedule regular reviews to adjust your arrangements to keep up with any life changes or tax reforms, including new opportunities.
It’s easy to get DIY tax planning wrong, which could lead to an unwelcome tax bill, not to mention the stress of sorting it out. Expatriates have the added complication of dealing with the tax rules of more than one country.
For the best results, talk to an adviser with in-depth understanding of cross-border taxation, including how the Portuguese tax regime interacts with UK rules. As well as offering peace of mind that your tax and wider financial planning is fully compliant, they can ensure it meets your needs and goals in the most tax-efficient way today, without burdening your family with unnecessary tax headaches in the future.
The tax rates, scope and reliefs may change. Any statements concerning taxation are based upon our understanding of current taxation laws and practices which are subject to change. Tax information has been summarised; individuals should take personalised advice.
Keep up to date on the financial issues that may affect you on the Blevins Franks news page at www.blevinsfranks.com.
By Christopher Moore, Partner, Blevins Franks
