As well as a lower tax bill for you and your heirs, strategic, effective tax planning can help provide estate planning advantages and boost investment returns.
When it comes to your savings and investments, is your main objective to preserve your wealth, provide an income, or generate growth? Perhaps it is all of the above? Whatever the answer, tax planning plays an important role in protecting and making the most of what you have.
While the tax tail shouldn’t necessarily wag the investment dog, there are numerous benefits to strategic tax planning, especially for expatriates who have cross-border considerations. Here are four of them.
1. A reduced tax bill for you
Let’s start with the most obvious advantage – reducing your overall liability for income tax, capital gains tax, and any other taxes on your savings, investments, assets, and pensions in your country of residence.
If there is a more tax-efficient way to hold your capital and assets, shouldn’t you explore if it could work for you? Yet many people fail to do just that and unknowingly end up paying more than they should. This may include income tax on bank interest you are not even withdrawing, or capital gains tax when switching between investments.
Many expatriates are also caught out by not reviewing their arrangements for their life abroad. Once you are no longer a UK resident, certain assets that were tax-efficient back home, such as ISAs and UK investment bonds, become taxable in your country of residence.
Meanwhile, you could be missing out on alternative structures available that can legitimately reduce your tax liability as well as provide other potential benefits, such as currency flexibility.
2. Less taxation for your heirs
Of course, the less tax you pay in your lifetime, the more you have to either spend now or pass on to your chosen heirs.
But with some investment structures, you may also be able to lower the inheritance tax liability for your heirs. A locally-compliant life assurance bond, for example, can be highly tax-efficient for estate planning purposes. Ideally, you want a solution that will limit inheritance taxes while also providing tax-efficient income and investment growth throughout your lifetime, so take personalised, specialist advice to explore your options.
3. More estate planning flexibility
Strategic tax planning can also help make things easier for your family when you are gone. Many investment arrangements that provide tax efficiency also offer more estate planning flexibility and control.
Most UK pensions, for example, are only transferable to your spouse on death, but when transferred to a Qualifying Recognised Overseas Pension Scheme (QROPS) or reinvested in a suitable tax-efficient structure for your country of residence, you could pass funds on to other chosen beneficiaries, often without the need to go through probate. (Residents of Spain, however, need to take advice on the tax implications of transferring to QROPS, unless you do so before you become tax resident).
4. Maximising real returns
Effective tax planning also plays a part in helping returns outpace the cost of living.
Ultimately, what counts when assessing the value of investments are actual ‘real’ returns – after all tax, expenses, and inflation is taken into account. Property, for example, is often lauded for producing relatively high returns over the long term, but with stamp duty, local rates, capital gains, and potentially wealth taxes applied (depending on where you live), the tax burden can be very large compared to other assets.
With investments, the starting point should always be making sure your portfolio is well-diversified and specifically designed to suit your situation, needs, goals, time horizon, and risk tolerance. But without suitable tax planning, returns can be diminished by taxes that could have been avoided or at least significantly reduced.
There are various ways of holding your investment capital, so do your research and seek local professional advice to choose one which is tax-efficient in your country of residence.
If you are planning a move, or already living abroad, you can download as many of our tax guides as you need – completely free.
Effective tax planning – how to get the best results
It is easy to get DIY tax planning wrong, especially with the regulatory goalposts changing all the time. Expatriates have the added complication of having to deal with the tax rules of more than one country at a time when global tax scrutiny is at its highest. Getting it wrong can not only lead to an unwelcome and unexpected tax bill for you or your heirs, but you could also end up facing a tax investigation.
It is important to make sure your tax planning is not done in isolation or as an afterthought – it should be a fundamental part of your investment, pensions, estate planning, and overall wealth management approach. Be sure to schedule regular reviews so you can adjust your arrangements to keep up with any life changes or tax reforms that may affect you, including new opportunities.
For the best results, talk to one of our advisers, who have an in-depth understanding of cross-border taxation, including how the local tax regime interacts with UK rules. As well as offering peace of mind that your tax and wider financial planning is compliant in your country of residence, we can ensure it meets your income needs and goals in the most tax-efficient way today, without burdening your family with unnecessary tax headaches in the future.
Contact Blevins Franks today.