Trusts: good reasons to never make a change

Whilst you may already have a fiduciary structure, they are currently the hot topic for the Portuguese resident. Changes in legislation have been linked in the English press to trusts and how, overnight, they have become disadvantageous for the Portuguese tax resident. If you want to consider trusts and the existing and unique advantages inherent in them, then read on.

The fundamentals of owning a trust or similar structure is to lodge assets in a tax and legally neutral jurisdiction whilst you establish a new home abroad. It would appear that the changes in legislation have projected some meaningful reasons into the forefront of Portuguese tax residents’ views whilst possibly distorting the benefits for using the trust structure in the first place.

As a Portuguese tax resident, why should you look thoroughly at trusts?

The main areas surrounding one’s financial life are often based on wealth management and estate planning but have you ever thought about the benefits of succession planning, anonymity, delaying the receipt of capital to children or other beneficiaries, and continuity of ownership? What about retirement planning?

There are seven key areas on the valid uses of trusts which can be identified as follows:
The family home. For many families, the main residence is now the most significant asset in their estate and also the most difficult asset to protect from estate taxes such as the UK inheritance tax. Increasing values have pushed many properties well above the inheritance tax nil rate band and there still remains a number of planning strategies to reduce or eliminate inheritance tax on the family home.

Passing investment assets down a generation. Some taxpayers may wish to transfer investment assets such as shares or property to their children to reduce estate taxes, without triggering capital gains tax. However, the taxpayer may consider the children too young to have control of assets and may wish to retain some influence over the assets and this objective can be achieved by establishing a trust.

“Estate freezer”. This technique involves ensuring that the value of shares in a company is fixed at their current market value. It can be useful for companies which are expected to increase rapidly in value and enables value to be passed to the next generation in a capital gains tax and inheritance tax efficient way.

Asset protection trusts. Trusts can provide an ideal vehicle for protecting private assets from matrimonial disputes, bankruptcy, unforeseeable creditors and long term care issues.

Leaving the UK. Planning and timing the exit and entry to different countries is vital. Offshore centres provide non-residents with a useful home for their assets and investments when moving abroad.

Dealing in land and property. As the property market begins to recover, there is an increased interest in land and property deals. With timely planning, it is possible to minimise tax on land and property transactions.

Retirement planning. Offshore pension planning for the European offer International Pension Plans and for the British expatriate, Qualified Recognised Overseas Pension Schemes (QROPS) and Qualified Non-UK Pension Schemes (QNUPS). When moving abroad or making Portugal a permanent home for the remainder of your life, consideration can be given to migrating a UK pension fund or simply establishing a pension structure from a single capital contribution.

To ensure that your personal plan is effective, you must assess, analyse and construct to satisfy not just one, i.e. solely your position regarding tax in Portugal, but as many of your goals as possible. Most of us want to pay less tax and achieving tax efficiency is a critical wealth creation tool; however, you should not lose sight of your personal objectives and allow the tax tail to wag the wealth management dog.

The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice. The article represents our interpretation of current and proposed legislation and HMRC practice as at the date of the publication. These may change in the future. Tax Planning is not regulated by the Financial Conduct Authority. Not all estate planning solutions are authorised and regulated by the Financial Conduct Authority.

By Raoul Ruiz Martinez
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Raoul Ruiz Martinez is a resident and independent consultant for Finesco Financial Services Ltd., Glasgow and advises clients on private financial matters in both the UK and throughout Europe under the MiFID regulation. Finesco Financial Services Ltd is authorised and regulated by the Financial Conduct Authority (FCA). Some of the services provided are not regulated by the FCA because they are not included within the Financial Services and Markets Act 2000. | 289 561 333