Are your savings and investments about preserving your wealth, generating income, or generating growth?
Maybe that’s all up? Whatever the answer, tax planning plays an important role in protecting that and getting the most of it.
While the tax tail shouldn’t necessarily wag the investment dog, strategic tax planning offers numerous advantages, especially for expatriates who have cross-border considerations. Here are four of them.
1. A reduced tax bill for you
Let’s start with the most obvious benefit – reducing your aggregate income tax, capital gains tax, and other tax liability on your savings, investments, assets, and pensions.
If there is a more tax efficient way to hold your capital and assets, shouldn’t it be considered if this could work for you? However, many people don’t and end up unwittingly paying more than they should. This could be income tax on bank interest that you don’t even withdraw, or capital gains tax on switching between investments.
Many expatriates are also caught not reviewing their arrangements for living abroad. Once you are no longer a UK resident, certain assets that were tax deductible at home, such as ISAs and UK investment bonds, will become taxable in Portugal.
In the meantime, you may be missing out on alternative structures that reduce your tax liability and other potential benefits, such as: B. Currency flexibility.
2. Less taxes for your heirs
Of course, the less taxes you pay during your lifetime, the more you have to spend now or pass on to your chosen heirs.
With some investment structures, however, you can also reduce the inheritance tax liability for your heirs. Ideally, you want a solution that limits inheritance tax while allowing tax efficient income and investment growth throughout your life.
3. More flexibility in estate planning
Strategic tax planning can also help your family in your absence. Many tax efficient investment agreements also offer more flexibility and control in estate planning.
Most UK pensions, for example, are only transferable to your spouse in the event of death, but if transferred to a Qualifying Recognized Overseas Pension Scheme (QROPS) or reinvested in an appropriate tax efficient structure for Portugal, you could pass funds on to other selected beneficiaries, often without the need to go by estate.
4. Maximizing the real return
In a global climate of economic uncertainty and persistently extremely low bank interest rates, effective tax planning also helps ensure that returns exceed the cost of living.
Ultimately, it is the actual returns that count when assessing the value of investments – taxes, expenses and inflation are taken into account. Real estate, for example, is often praised for generating relatively high returns over the long term, but with stamp taxes, local rates, capital gains, and possibly property taxes, the tax burden can be very high compared to other assets.
The starting point for investments should always be that your portfolio is well diversified and specially tailored to your situation, needs, goals, time horizon and risk tolerance. But without appropriate tax planning, income can be reduced by avoidable or at least significantly reduced taxes.
This is how you get the best results
It’s easy to go wrong with DIY tax planning, especially when the regulatory target posts are constantly changing. Expatriates have the added complication of having to grapple with the tax rules of more than one country at a time when global tax control is the highest. If you do something wrong, not only can it result in an unwanted and unexpected tax bill for you or your heirs, but you could face a tax investigation.
It is important to make sure that your tax planning is not done in isolation or after the fact – it should be a fundamental part of your investment, pension, estate planning, and overall wealth management approach. Schedule regular reviews so you can adjust your arrangements to keep up with any life changes or tax reforms that may affect you, including new opportunities.
For the best results, speak to an advisor who has extensive knowledge of cross-border taxation, including how the Portuguese tax system interacts with UK regulations. In addition to knowing that your tax and financial planning in Portugal is compliant, you can ensure that your income needs and goals are met in the most tax efficient way today, without creating unnecessary tax problems for your family in the future.
The tax rates, the scope and the reliefs are subject to change. All taxation statements are based on our understanding of current tax laws and practices, which are subject to change. Tax information has been summarized; Individuals should seek personal advice.
By Dan Henderson
Dan Henderson is a partner at Blevins Franks in Portugal. A very experienced financial advisor, he holds a degree in financial planning and advanced qualifications in pension and investment planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com