You have probably heard the so called ancient Chinese saying “may you live in interesting times”. It sounds like a blessing but is actually a curse. It is, in fact, neither Chinese nor ancient, but still a useful way of summing up the financial environment facing expatriates in Portugal today.
From a financial point of view, interesting times could both be negative, throwing up pitfalls and increasing risks, and positive, creating new opportunities.
This is a tricky landscape to navigate, and expatriates need to understand how the changes impact them personally and what their options are, and recognise what will achieve the results they are looking for and where the traps lie.
For your financial security, and your heirs, you want to make the right decisions today to have peace of mind for the future. Professional guidance is essential.
Income tax reform in Portugal introduced new legislation to tax fiscal structures like trusts. There was limited time between the announcement in mid-December and the new rules commencing January 1, but some advisers were able to respond quickly and guide clients accordingly.
This does not mean that you could only make changes before the end of December, just that that would have had some benefits. It is not too late to review your tax and estate planning and consider the best way forward for your personal circumstances.
All major countries have tightened their law for such structures over recent years. There has also been a significant move to automatic exchange of information, which will start across around a 100 countries over the coming years.
Besides any tax implications, this is the end of financial privacy – governments will be able to track our wealth like never before.
The other key change is the UK pension reform from April 6. This opens the door to a whole range of opportunities, but with more choice comes more responsibility. Ensure that, whatever you do, your pension savings continue to provide financial security throughout your retirement years.
The pension freedom centres mainly on defined contribution schemes, rather than defined benefit (final salary) schemes. You could potentially transfer to a defined contribution scheme, but could lose valuable benefits so this needs to be very carefully considered.
In such a changing environment, you need to take up-to-date expert advice.
When choosing your adviser, besides looking at whether they specialise in all the financial planning areas of concern to you, you may wish to consider how they are regulated, for peace of mind.
While Portugal has its own regulation system, the UK’s Financial Conduct Authority (FCA) is considered one of the most rigorous and professional regulators in Europe. The Treaty on the Functioning of the European Union gives regulated entities within one EU country permission to legitimately conduct business in another EU country, through the EU’s Insurance Mediation Directive.
British nationals living in Portugal will be familiar with the FCA, and feel reassured by its regulatory powers. Since their financial planning often involves both countries, a firm which is regulated to provide financial and pension advice in both the UK and Portugal can be the optimal situation for them.
Qualifications and high professional standards are also important. The FCA now requires all advisers it regulates to have obtained the Diploma for Financial Advisers. This involves considerable professional study, various examinations and continuous personal development.
There are other factors to consider when choosing an advisory firm, and where and how a company is regulated may not be the deciding factor for you. However, for certain transactions you should be looking for a UK regulated firm. For example, under the UK pension rules, you can only transfer out of a defined benefit scheme if you have taken advice from a UK FCA regulated firm.
Whether it is pensions, tax or estate planning, the key thing is to make sure you have all the facts before you make a decision, and weigh up the pros and cons of each option. It is definitely worth taking the time and effort to get it right.
Blevins Franks Financial Management Limited (BFFM) is authorised and regulated by the Financial Conduct Authority in the UK, reference number 179731. Where advice is provided outside the UK, via the Insurance Mediation Directive from Malta, the regulatory system differs in some respects from that of the UK. Blevins Franks Trustees Limited is authorised and regulated by the Malta Financial Services Authority for the administration of trusts and companies. Blevins Franks Tax Limited provides taxation advice; its advisers are fully qualified tax specialists. This promotion has been approved and issued by BFFM.
By Gavin Scott
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Gavin Scott, Senior Partner of Blevins Franks, has been advising expatriates on all aspects of their financial planning for more than 20 years. He has represented Blevins Franks in the Algarve since 2000. Gavin holds the Diploma for Financial Advisers. | www.blevinsfranks.com
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