It is that time of the year when many people make New Year resolutions to improve their life in one way or another. Whether or not you make resolutions, this is a good time to consider whether you need to review your financial planning.
To protect your financial security through retirement, and achieve your wishes for your family and heirs, you should have a strategic tax and wealth management plan in place. This should cover your savings and investments, tax planning, pensions funds and estate planning. These should all be set up to work together to preserve your wealth over the long-term and meet your objectives.
You need to consider recent global and local developments that may affect your finances in the coming year, as well as have a long-term strategy. Any changes in your personal circumstances could also warrant a review.
Once you have assessed your situation and financial planning, you will be able to discuss any necessary adjustments with your financial adviser.
Savings and investments
2016 was certainly an interesting year, with Brexit and US elections. More recently the Italian referendum could add uncertainty for the Eurozone and financial markets. Diversification is more important than ever. Do you have a long-term strategic asset allocation plan which is specifically designed around your circumstances, needs and risk profile?
Diversification gives your portfolio the chance to produce positive returns over time without being vulnerable to any single area under-performing. There are various levels you should have in your investment portfolio:
1) Asset allocation – spreading your capital across different asset classes (equities, bonds, real assets, property, cash etc).
2) Diversification across geographical areas, sectors, company size etc.
3) Owning equities and bonds issued by a range of companies (for example through owning a selection of funds).
4) Utilising a multi-manager approach where you diversify across managers and styles.
The starting point is to obtain a clear and objective assessment of your appetite for risk, to make sure your portfolio is suitable for you.
Remember that as asset prices rise and fall, your portfolio can shift away from the one designed to match your risk profile and objectives. You should review your portfolio around once a year to rebalance it if necessary.
Do you have savings and investments in the Isle of Man, Channel Islands or Gibraltar? These jurisdictions are included in Portugal’s official list of “tax havens”, and investment income derived from assets held within these territories is taxed at a higher rate. It may be time to reconsider your plans.
Take specialist advice to review if your investments and wealth are arranged in the most effective, up-to-date way to limit your tax liabilities. Choose someone who is well-versed in the nuances of both Portuguese and British taxation. The right tax-efficient arrangement can keep most of your investments in one place and help you legitimately avoid paying too much tax.
The new global automatic exchange of information regime under the Common Reporting Standard is now in force. The first data will be exchanged in 2017, with more countries following next year. Cross-border tax planning can be complex, so you need to ensure you are declaring income and paying tax in the right country.
If you are not yet tax resident here, seek advice on Portugal’s Non-Habitual Resident regime, which provides beneficial tax treatment for the first 10 years of residence. If you are already approved under the scheme, are you using it to your full advantage?
The first step is to establish your goals. Who would you like to benefit from your estate? Are you happy for them to have control over the money? When should they receive the funds? How much tax will they have to pay on their inheritance (UK inheritance tax and/or Portuguese stamp duty)?
You then need to obtain specialist advice to ensure that your estate plan is specifically set up to achieve your wishes for your heirs.
Under the EU succession regulation Brussels IV that came into force in August 2015, if you want to avoid the restrictive Portuguese succession law and want UK law to apply to your estate, you need to elect for this in your will. Take expert advice before choosing UK law as it may have indirect tax consequences.
Whether it is investments, tax or pension planning, seek professional advice to ensure you do what works best for your personal situation. Use an adviser who can guide you on all these aspects and provide holistic solutions so you can have peace of mind that your financial affairs are in order.
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; an individual is advised to seek personalised advice.