The last few years have emphasised how uncertain life can be; how we never know what is around the corner. Brexit and the pandemic have now been followed by the worrying and upsetting events in Ukraine. Life feels more uncertain again.
This perhaps makes it more important for us to take control where we can, as much as we can, particularly when it comes to our family’s long-term future and security. So, here we take a look at the key wealth management considerations we should review from time to time.
For most of us, our pension funds are key to our long-term financial security, so great care must be taken to do what is right for you and your family. The UK pension freedoms may no longer be ‘new’, but they can still cause uncertainty when deciding what to do with yours, and each option has pros and cons.
If you are planning to spend your retirement years in Portugal, you also need to establish the local tax implications and what works best for you as a Portugal resident.
Many expatriates have chosen to transfer UK pensions to a Qualifying Recognised Overseas Pension Scheme (QROPS) for the advantages they can offer, such as income and currency flexibility. But they do not suit everyone – you may find it more beneficial, for example, to reinvest UK pension funds into Portuguese-compliant investment arrangements, or even leave your UK pension where it is. Also, the UK has recently made changes which make transferring to QROPS more difficult.
In any case, you should always take personalised, regulated pensions advice to ensure you take the best course of action for your particular circumstances.
Your savings and investments
It is impossible to control what may or may not happen in the markets in future, what geopolitical events may cause volatility or prices to rise; we can’t know what interest rates will be five, 10, or 20 years from now.
But we can take steps to build an investment portfolio that:
▪ is based around our risk profile, circumstances, time horizon and objectives; and
▪ includes suitable asset allocation and diversification to control risk; and
▪ is designed to provide capital growth over the longer term to beat inflation so you can maintain your spending power through retirement.
Geopolitical events, like those we’re seeing at the moment, can cause significant market turbulence which can be unsettling for investors, but that does not mean it’s the time for knee-jerk reactions or short-term changes.
History has shown that ‘timing’ markets is incredibly difficult, especially where out-sized market movements are involved. And in timing, an investor needs to get it right twice – when to encash some of your investments and when to get in the market. Getting one right is rarely achieved, as the news has already arrived by the time you can look to act (so markets will already have reacted). The same also applies when markets move sharply upward as we saw after the initial Covid news in 2020.
Investing is a marathon not a sprint, so being patient and sticking with the plan can pay off.
While we cannot avoid death, with good estate planning we can control who receives our assets and when. Is your legacy on track to go to your chosen heirs according to your wishes and with minimal taxation? Take care to understand the succession laws and inheritance tax in Portugal and anywhere else you have assets and heirs, as well as the pros and cons of using the EU succession regulation ‘Brussels IV’ to override local ‘forced heirship’ rules.
You need a strategy that achieves your wishes while making the process straightforward and tax-efficient for your heirs. And don’t forget your own needs; consider the tax implications to find the optimum solution for your wealth during your lifetime too.
The way you structure your assets and wealth can make a significant difference to your tax bill. You need to make sure your arrangements are structured appropriately for your life in Portugal as well as your particular aims, circumstance, goals and risk appetite.
Are you taking advantage of tax-efficient structures available in Portugal? Besides tax savings, these may offer additional benefits such as currency and income flexibility and estate planning advantages.
Ultimately, cross-border tax and financial planning is complex. While you can do some groundwork yourself, you will benefit from talking to a specialist adviser with in-depth knowledge of the Portuguese tax regime and its interaction with UK rules. They can help you take advantage of available tax, investment, pensions, and estate planning opportunities to ensure you do what works best for you and your family, today, tomorrow and in the future.
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.
Sharon Farrell is a Partner of Blevins Franks in Portugal.