When it comes to saving and investing, is your main goal to preserve your wealth, provide income or generate growth? Maybe it’s all of the above? Whatever the answer, tax planning plays an important role in protecting and valuing what you have.
While the tax tail doesn’t have to be disruptive to investing, strategic tax planning has many benefits, especially for expats who have cross-border considerations. Here are four.
A reduced tax bill for you
Let’s start with the most obvious benefit: reducing your overall liability to income tax, capital gains tax and other taxes on your savings, investments, assets and pensions in your country of residence.
If there is a more tax-efficient way to hold your capital and assets, shouldn’t you explore if that might work for you? Yet many people fail to do this and end up unknowingly paying more than necessary. This can include income tax on bank interest you don’t even withdraw or capital gains tax when you switch between investments.
Many expats are also caught off guard by not reviewing their arrangements for living abroad. Once you are no longer a UK resident, certain assets that were tax-efficient in your home country, such as ISAs, become taxable in Portugal.
Meanwhile, you might be missing out on alternative structures available here that can legitimately reduce your tax liability while providing other potential benefits, such as monetary flexibility.
Less taxation for your heirs
Of course, the less taxes you pay over your lifetime, the more you have to spend now or pass on to your chosen heirs.
But with some investment structures, you can also reduce your heirs’ inheritance tax. A life insurance bond that complies with Portuguese standards, for example, can be very tax efficient for estate planning purposes. Ideally, you want a solution that will limit inheritance tax while providing tax-efficient income and investment growth throughout your life, so take personalized and expert advice to explore your options.
More flexibility in estate planning
Strategic tax planning can also help make things easier for your family while you’re away. Many investment arrangements that offer tax efficiency also offer more flexibility and control when it comes to estate planning.
Most UK pensions, for example, are only transferable to your spouse on death, but when transferred to a Recognized Overseas Pension Scheme (QROPS) or reinvested in a tax-advantaged structure suitable for Portugal, you can transfer funds to other chosen recipients. , often without the need to go through homologation.
Maximize real returns
Effective tax planning also helps to help returns exceed the cost of living.
Ultimately, what matters when assessing the value of investments are the actual “real” returns – after all, taxes, expenses and inflation are factored in. Property, for example, is often let to produce relatively high returns over the long term, but with stamp duty, local rates, capital gains and potentially wealth taxes applied, the tax burden can be large relative to other assets.
With investments, the starting point should always be to ensure that your portfolio is well-diversified and specifically designed to meet your situation, needs, goals, time horizon and risk tolerance. But without proper tax planning, returns can be diminished by taxes that could have been avoided or significantly reduced.
There are different ways to hold your investment capital, so do your research and seek advice from a local professional to choose one that is tax-efficient here in Portugal.
How to get the best results
It’s easy to get DIY tax planning wrong, especially with regulatory goals that change all the time. Expats have the added complication of having to deal with the tax rules of more than one country, at a time when global tax scrutiny is at its highest.
It’s important to make sure your tax planning isn’t done in isolation or as an afterthought – it should be a fundamental part of your investment, retirement, estate planning and overall approach to wealth management. Be sure to 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 best results, speak to an adviser with in-depth knowledge of cross-border taxation, including how the Portuguese tax regime interacts with UK rules. As well as providing peace of mind that your wider tax and financial planning is compliant in Portugal, they can ensure it meets your income needs and goals in the most tax-efficient way today. today, without burdening your family with unnecessary tax headaches in the future.
Tax rates, coverage and reliefs may change. All statements regarding taxation are based on our understanding of current tax laws and practices which are subject to change. Tax information has been summarized; individuals should take personalized advice.
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Dan Henderson is a partner at Blevins Franks in Portugal. A highly experienced financial adviser, he holds a diploma in financial planning and advanced qualifications in retirement and investment planning from the Chartered Insurance Institute (CII). | www.blevinsfranks.com