Most of us are aware of and enjoy the benefits of living in the Algarve; sun, sea and fresh air are the obvious, but there are others, perhaps less obvious, which can have an enormous impact on our future, our security and our lifestyles – and will last much longer than a tan.
As non-Portuguese nationals living in Portugal (even part-time) we can often take advantage of key international financial solutions and tax efficiencies which greatly expand our opportunities to grow capital – and keep hold of more of it when we have grown it
Whatever our opinion of the UK financial systems and arrangements, we can all agree that there are many challenges within it – and some that are very restrictive and costly. I can’t think of many subjects more likely to elicit a good dose of dissatisfaction than taxes, especially on money we consider has already been taxed, pensions and savings for example. The prospect of having the hard-earned money that we want to leave to our loved ones substantially reduced by inheritance tax is not that attractive!
And consider the method used by most governments to collect the tax levied on the interest earned from our savings in a bank. ‘Tax at source’ calls for a bank to deduct interest from our growth and pay it straight to the government – we never see this money and cannot benefit from any compound growth opportunities.
I’m sure many of us would welcome the legal circumvention of just these taxes alone.
Leverage the advantages
Financial planning is much like any other planning – the greater the opportunities and flexibility, the greater the prospects for success. The international market is clearly larger and more diverse than a national market and will therefore provide us with clear advantages – very evident when we study the three instances above; pensions, inheritance tax and tax at source.
Most of us have heard about the possibilities of transferring our pensions away from the UK using a Qualifying Recognised Overseas Pension Scheme (QROPS). Although there is often a lot of confusion and even poor advice about our opportunities with QROPS, there is no doubt that many of us can gain many benefits, such as more control, greater flexibility, access to wider investment choices, significant tax benefits and more security. It is possible to find out if we can gain these benefits quite simply and without cost or obligation, so if we have a pension in the UK we should investigate our options.
Inheritance Tax can be a very emotive subject. Many of us feel that having worked long and hard and paid our dues on the way, it is unfair to be taxed again on the money we want to leave our loved ones when we are gone. Again, we do have some options to mitigate or even remove this tax obligation but it requires planning and early action if we are to get the best results.
For many years now, banks have been required to collect tax at source on any investments they hold for us. Forgetting any other ramifications this has, it means that we have no choice to control this money and this removes a vital growth element from our savings and investment – the compound growth of the interest paid.
The difference to our growth can be substantial. For example, if the interest paid is say £1000, and we were achieving say 7%, that is a loss of £70. With that staying in the account it would attract a further £4.90 interest in the following year (given the 7% were maintained). We would then continue to receive growth on the interest on the interest etc. Over 5 or 10 years this increases our interest gained very considerably.
Leave nothing to chance
These three very simple examples of where we can make more income and save paying too much tax shows the importance of maximising every opportunity to do both!
There are many other areas which we can investigate. Obviously, like any other technical and complicated information we need professional advice to be certain we are leaving nothing to chance and maximising our opportunities and results, which after all we must do to ensure our success and our security.
This facility is not suitable for all expatriates, and we recommend that advice is sought before one makes any commitment. As an Independent Financial Adviser, Blacktower seeks to ensure that our clients receive the advice suitable for their specific circumstances. Please contact us for further details 289 355 685
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William Offen is Blacktower Financial Management (International) Country Manager, Portugal