The New Year is a time when most of us take stock of our situation and set goals to improve our health, happiness, lifestyle and wealth. This year make it one of your resolutions to check your financial planning is on track to meet your needs and protect your family’s long-term financial security.
Why regular reviews are important
Regular reviews help keep your financial affairs compliant and up to date. Tax rules or financial regulations can change at any time, which may affect the tax efficiency – or even legality – of your existing arrangements. There may also be new opportunities that you could find beneficial … but only if you know about them. With Brexit on the horizon, it is especially important to keep ahead of any developments that may affect you, for better or worse.
You also need to consider if any changes in your personal and family circumstances mean you should adjust your arrangements. Did you welcome any new family members or are there any upcoming major life events – such as retirement, relocation or divorce – that may warrant a rethink of your plans?
For a truly effective review, and to ensure it is suitable for your life in Portugal, consider how your tax planning, investments, pensions and estate planning work together.
You should first make sure you know where you are resident for tax purposes, especially if you are new to Portugal or spend time in both countries. You then want to structure your investments and wealth in the most suitable way to minimise taxation – here, the UK and wherever you have financial interests – while still meeting your obligations.
Today, with the ‘automatic exchange of information’ regime well underway, it is more important than ever to get it right. Over 100 countries – including Portugal and the UK – are sharing data on residents’ overseas income and assets, with more joining each year. This means your local tax office will receive financial information about you without having to even ask for it. Remember, in extreme cases, tax evasion can result in prosecution, even if it is unintentional.
Cross-border tax planning is complex, so take specialist advice to achieve peace of mind and potentially secure significant tax savings.
Savings and investments
If you do not already have a financial plan in place for Portugal, you need to take a fresh look at your savings and investments. Are they actually better suited to a UK resident? Do they meet your risk/reward appetite? Have you taken advantage of suitable tax-efficient opportunities in Portugal?
Successful investing is about having a strategy specifically based around your personal circumstances, time horizon, needs, aims and risk tolerance. You should ensure you have adequate diversification to avoid over-exposure to any given country (including the UK), asset type, sector or company. Explore investment structures that allow multi-currency flexibility to help minimise exchange rate risk.
Today’s pension landscape offers more choice than ever, but this may change with Brexit. For example, it is possible that tax-free transfers to Qualified Recognised Overseas Pension Schemes (QROPS) in the EU/EEA may be targeted once the UK sheds its EU obligations. Carefully weigh up all your options, as well as the tax implications in Portugal and the UK, to establish the best course of action for you.
Make sure you take regulated advice to protect your retirement benefits from pension scams and do what is right for your personal circumstances and aims.
It is vital to review your estate planning when living in Portugal, as both succession law and tax work very differently to the UK.
Are you aware, for example, that Portugal’s ‘forced heirship’ rules could automatically pass a significant proportion of your worldwide estate to your direct family, whatever your intentions? You can specify in your will for the EU regulation ‘Brussels IV’ to apply relevant British law to your estate instead, but take care to understand your options and any tax implications.
Your estate plan should be set up to achieve your wishes in the most tax-efficient way possible. If you remain UK domiciled – as many expatriates do in most countries – you continue to be liable for UK inheritance tax, so you should plan to reduce this liability for your heirs.
To bring all these complex elements together and ensure you have not missed out on any suitable opportunities, take expert, cross-border advice. Spending time on a financial health-check now can secure peace of mind that you and your family are in the best position to enjoy a prosperous 2020 and beyond.
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 seek personalised advice.
By Mark Quinn
Mark Quinn is a Partner of Blevins Franks in Portugal. He holds a Bachelor’s Degree in Finance, a level 4 Diploma in Financial Planning (DipFA) from the Chartered Insurance Institute (CII) and is a Chartered Financial Planner.