This New 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.
While you can, of course, review your financial planning at any time, the New Year is the perfect prompt to take a fresh look. And for UK nationals living in Portugal, this is especially important in 2021 as we begin to navigate a post-Brexit world.
Looking at the bigger picture
A key reason to review your wealth management is checking it is all up to date. You need to establish whether any changes in tax rules, financial regulations or your own personal circumstances mean you should adjust your arrangements. However, to ensure everything is suitable for your life in Portugal, as well as your needs and goals, your review needs to go beyond this.
Many people only consider segments of their finances at a time. For example, they may have bought shares in companies they like or invested in funds recommended by an adviser years ago. They may speak to a tax accountant about Portuguese taxation and tax planning opportunities. Then they speak to a lawyer about setting up a Portuguese will. At some point they look at their pension funds and try and work out how best to access their retirement savings.
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. Here are some key considerations.
Residency and taxation
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 – in Portugal, the UK and wherever you have financial interests – in a way that still meets all your obligations.
Regardless of how effective your tax planning in the UK was, you pretty much need to start afresh in Portugal. What was tax-efficient in the UK is unlikely to be tax-efficient here. Make sure you explore the compliant opportunities available in Portugal to establish what would work for your situation and aims, and how much tax you could potentially save.
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? This can have unwelcome consequences for certain families unless you plan ahead. 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.
Financial structuring for life in Portugal
Perhaps the key rule for financial planning is that it must be specifically structured around your personal circumstances – your lifestyle today and plans for the future, family situation, income requirements, objectives, time horizon and risk tolerance.
If you don’t already have a financial plan in place for Portugal, or you haven’t reviewed your savings and investments recently, you need to check they are still suitable for you and the current economic climate. Do they have the right balance of risk and return? Do you have adequate diversification? Can they provide income without risking the capital? Could you consolidate shares and funds so they are easier to manage?
At the same time, consider your tax liabilities on investment income and gains, and whether you could take advantage of tax-efficient arrangements as a resident of Portugal. Also, how will these savings be passed to your heirs? What inheritance taxes will they have to pay? Can the funds be passed on directly or will there be a lengthy probate process?
And when deciding what to do with your pensions, take care to explore all your options to establish the most suitable approach for you.
Pulling everything together
Every family is different. Your strategic financial planning must be carefully designed for you. All the various aspects should work cohesively together to create an overall wealth management plan that provides long-term financial security for yourself and achieves your wishes for your heirs.
For peace of mind that you have covered everything – and that making one financial decision will not have unexpected consequences on another – take specialist, cross-border advice. If you still use a UK-based financial adviser, however, check they can legally continue to provide services to you in Portugal now that Brexit has happened.
Ultimately, spending time on a financial health-check now can help ensure you and your family are in the best financial position to enjoy a prosperous 2021 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 6 Advanced Diploma in Financial Planning from the Chartered Insurance Institute (CII) and is a Chartered Financial Planner.