In five years HM Revenue & Customs (HMRC), Britain’s tax authority, used the data to bring only one prosecution. France, Belgium, Spain, the US and Argentina have launched legal proceedings against HSBC and its high net-worth clients. So far, £135m has been recovered from HSBC clients in the UK. France has recovered £188m in taxes and fines from a list of 3,000 clients and Spain has recovered £220m, also from 3,000 clients. Australia said it had recovered more than A$30m (£15m) over the past five years.

Changes to Income Tax in Portugal

It is clear that all EU Tax Authorities are constantly looking at ways to collect more and more taxes. It would seem that Expats are an easy target.

On the 1st of January 2015, the Portuguese Tax Authorities’ brought changes to its Income Tax Legislation. They have now put into motion the infrastructure to be able to tax fiscal structures; one such structure often used by Expats are ‘Trusts’.

For many years now, Expat Residents of Portugal and potential residents have invested their wealth via Trust Structures; the reason – there was potentially no Income Tax to pay on Income and/or Withdrawals. So if you have settled a trust to hold your investments you will need to reconsider and seek professional advice as to its continued suitability. Failure to do so could see you liable to Income Tax on withdrawals/distributions of up to 35%, but no less than 28% – and this may be  regardless of whether this is Capital and/or Income.

The rationale being, the absence of Income Tax payable on distributions made by the trust on the initial capital or indeed capital gains.

As of the 1st of January 2015 the above ceased to apply. All proceeds, irrespective of whether it is deemed initial capital (i.e. reimbursement of the entrusted capital) or capital gains will incur a Tax liability.  The tax levied for such transaction is set at the nominal rate of 28% (35% attributed to jurisdictions not recognized by Portugal, e.g. Isle of Man, Guernsey to name but a few). Failure to do so could see you liable for a potential civil suit by the Portuguese authorities.

So if you have settled a trust to hold your investments we recommend you seek professional advice as to its continued suitability.

What is clear to us here at Blacktower is that Offshore is now ‘dead’; it’s in fact been dead for some time. We would rather concentrate on advising our clients on how best to invest their wealth whilst fully taking into consideration the location they live in.

So what can you do?

The Solution – A Tax Compliant Bond

A Private Wealth Portfolio is a single-premium portfolio account, specifically designed for Portuguese residents.

Tax Benefits

Gross roll-up tax regime

It falls under the definition of an ICAE (instrumento de captacao de aforro estruturado” or “structured instrument for attracting savings”) as established in Article 206.1 of the Portuguese Law. This is a key advantage in Portugal compared to direct investments either held locally or abroad.

Tax on Withdrawals

Tax is payable on the ‘proportionate’ gain at a rate of 28% during the first five years; this then reduces to 22.4% between years 5-8; and after 8 years you will be liable to 11.2%.

Whilst those percentages may still sound high, when you work through the calculation of what in fact constitutes a ‘Proportionate Gain’ you will be very surprised at just how tax effective this solution can be.

Stamp Duty

Life insurance premiums are excluded from Portuguese Stamp Duty (imposto de selo) as per Article 7, paragraph 1 (b) of the Portuguese Stamp Duty Code.

Inheritance and Gift Tax

No inheritance or gift taxes are levied in Portugal. Instead, Stamp Duty is paid at a flat rate of 10% for gratuitous transfers, but transfers to spouses, descendants and ascendants, are exempt.

Combination with Portugal residence permit

Private Wealth Portfolio is an optimal solution for non-habitual residents and beneficiaries of the Portugal residence permit (Golden Visa Programme) as they can also take advantage from the optimal tax treatment of the product for Portuguese residents.

Conclusion

In ever changing circumstances, it is important to call upon our many years of experience, our reputation and our industry relationships. This has enabled Blacktower to create a tax effective solution in partnership with a major EU Life Company.

Article written by Robert Mancera, Director