Not much is certain as we head into the final stretch of 2020. Unfortunately, with no end in sight for the global coronavirus pandemic and still no final word on Brexit, we can expect things to remain unsettled for some time. While no-one can predict exactly what’s around the corner, there are some steps you can take to make your financial position as secure as possible.
If you have not recently given your finances a health-check, you will almost certainly benefit from reviewing your situation now.
Deal or no deal, the new year will begin with the UK’s full departure from the EU. While this should have no immediate impact for Britons lawfully settled in Portugal, there may be longer term effects for the unprepared. For example, some UK savings and investments could attract a higher tax bill from 2021 once they cease to be EU/EEA assets, and UK pension or tax rules could potentially change for non-residents in the future.
Besides the disruption that Brexit may bring, your circumstances and goals evolve over time. If you don’t keep up, you could find you are paying more taxes than you need to or missing out on opportunities that offer significant advantages.
You should schedule a review of your financial situation at least once a year, looking at how your savings, investments, other assets, tax planning, pensions and estate planning are structured and how they can best work together.
Protecting your wealth
The current economic and political climate presents many challenges to preserving your wealth and seeing it grow over time.
For one thing, the prolonged period of low interest rates has made it harder to achieve good returns on bank deposits and lower-risk investments. There is also more global tax scrutiny than ever, with frequent changes to tax and pensions legislation. And, of course, the Covid-19 pandemic continues to generate global economic uncertainty and market volatility.
At times like this, careful planning plays a particularly important role in securing your financial security over the long term. While all investments – even bank accounts – carry risk, a suitably diversified portfolio can help manage risk within your comfort level. An essential step is establishing a clear and objective view of your risk tolerance to determine the investment approach that will best suit you.
DIY vs expert advice
While some take a DIY approach to financial planning, most people who have built up or inherited wealth will benefit from an independent and expert review of their finances. It is extremely difficult to take a step back and look at your broad financial situation from a truly objective point of view, or fully understand all the cross-border tax implications. As the goalposts often change, it is quite easy to get DIY tax planning wrong and potentially invite an unexpected tax bill, or even a tax investigation.
A professional adviser can take time and use relevant tools to thoroughly understand your unique situation, needs and objectives to tailor tax-efficient solutions – for you and your heirs.
The limits of UK-based services
If you have a relationship with a UK-based financial adviser or hold a British bank account or investment product, make sure you check they can legally provide services to you from January 1. As things stand, many UK financial businesses are set to lose their licence to operate within the EU/EEA once the transition period ends. We know of at least three major UK banks who have advised EU-based clients that they will be withdrawing services due to Brexit.
While you should be able to retain existing UK accounts/policies and make withdrawals as an EU resident, you may be restricted from adding or moving funds and applying for new services, such as term deposits, bonds, foreign currency management, loans and credit cards. Foreign banks/providers may also refuse instructions from non-EU-based advisers.
If your UK provider hasn’t contacted you about limited future services, ask them what arrangements they have in place for Portugal next year.
Financial planning for Portugal
Besides the legal implications, consider whether a UK-based provider is best placed to support you in Portugal. A strategy designed for a UK resident will not usually provide the same benefits to a non-UK resident, and it is unlikely that a UK professional will have in-depth understanding of Portuguese taxation and how it interacts with UK rules.
An adviser with local knowledge and expertise in cross-border tax planning can help ensure your wealth and assets are held as tax efficiently as possible for your life in Portugal. They can also recommend locally-compliant solutions that offer other advantages, such as multi-currency options and estate planning flexibility.
Ultimately, the sooner you set up a suitable, long-term strategy to protect your wealth, the sooner you can have peace of mind about your financial future in the Algarve.
All advice received from Blevins Franks is personalised and provided in writing. This article, however, should not be construed as providing any personalised taxation or investment advice.
By Adrian Hook
Adrian Hook is a Partner of Blevins Franks in Portugal and has been providing holistic financial planning advice to UK nationals in the Algarve since 2008. He holds the Diploma for Financial Advisers (DipFA) and is a member of the London Institute of Banking and Finance (LIBF).