May 4, 2022
Meeting Joanna and Wim
Joanna and Wim live in Saint-Trond, Belgium. Joanna has spent her entire career working for a multinational. For his part, Wim worked as a self-employed IT consultant. They have two children, Lieselot and Bart. Lieselot obtained a master’s in Economics two years ago and now lives in Madrid, where she spent her time in the Erasmus programme and completed a company internship to conclude her studies. She is planning to stay in Spain as she met her partner Pedro there, and they are going to get married in a few years’ time. Their second child, Bart, is studying psychology at KU Leuven and is planning to remain in Belgium over the long term.
Wim and Joanna built their own house twenty years ago. It is now worth about EUR 800,000. They also bought a holiday home in the Algarve.
During their careers, the couple have constituted a portfolio of shares, bonds and SICAVs, now currently worth EUR 850,000.
When Joanna retired, Wim decided to wind up his company. This produced a liquidation surplus of EUR 500,000 in addition to the lump sum of EUR 570,000 from his company’s pension scheme. As for Joanna, she received a lump sum of EUR 450,000 from her company’s pension scheme.
Together, the couple therefore has EUR 850,000 in securities held in a Belgian bank account and EUR 1,520,000 in their personal bank account.
- Spend their latter years in the Algarve
- Sell their house in Belgium
- Consolidate their investments and recently obtained liquidity within a product offering mutual protection should one of them die
The OneLife solution
After discussing the matter with their family, the broker implements a solution able to meet their objectives, in collaboration with the OneLife team who has the required local expertise to ensure compliance with the different local jurisdictions.
Joanna and Wim will jointly be taking out a life assurance policy as Portuguese residents as soon as they have acquired this status, and will hold most of their investments and liquidity in the policy. These assets will be invested in an internal dedicated fund managed by the asset manager of their choice, employing an investment strategy in keeping with their investor profile.
Joanna and Wim also wish to retain the possibility of changing the list of beneficiaries of the policy to take into account future grandchildren.
If required, Wim and/or Joanna may exercise their total or partial surrender right to enjoy unrestricted access to their funds.
- On the decease of the first spouse, the assurance policy will be transferred to the surviving spouse in full. The surrender rights will also be transferred to the surviving policyholder.
- On the decease of the surviving spouse, their assets will then be transferred to their two children under beneficial tax provisions.
Meeting the objectives
From a wealth management point of view
- In the event of the decease of Wim or Joanna, the rights attached to the policy will be transferred to the surviving spouse and the policy does not entail any risk of being frozen or terminated. The surrender rights will also be transferred to the surviving policyholder.
- On the decease of the surviving spouse, the assets will be transferred to the two children.
From a tax point of view
No double taxation despite the cross-border element
- Luxembourg tax laws do not levy taxation on funds held within the assurance policy (fiscal neutrality, no double taxation).
- By obtaining the status of Portuguese tax residents, Wim and Joanna will not be taxed in Belgium on the income from the policy as they will no longer be treated as Belgian tax residents.
Favourable taxation of investment income
- The capital gains generated by the sale and switching of the assets underlying the policy will not be taxed in Luxembourg.
- The taxation of investment transactions will be fully deferred until the policy is redeemed, whether in whole or in part. Portugal also provides for lower taxation for surrenders conducted 5 or 8 years after the policy has been taken out.
- On the decease of the second spouse, the couple’s children may inherit the assets held within the life assurance policy under favourable terms. Bart will not be taxed at all as a Belgian resident. For Lieselot, on the other hand, the applicable taxation will depend on the region of her residence in Spain at the time when the policy is terminated and benefits are paid out, in light of any applicable reductions and/or exemptions and the amounts actually received. For example, in the case of the Madrid region, there is a 99% tax bonification for successions/donations between parents and children.
Thanks to the support provided by OneLife, the broker employed by Wim and Joanna has been able to find a bespoke solution to meet their personal objectives with legal and fiscal certainty.
The policy remains adaptable should circumstances change, once again with the support of the dedicated OneLife team. The broker has been able to maintain the client relationship despite the move to a different country.
Want to know more?
Discover in our whitepaper the benefits of Luxembourg life assurance and its application through some practical cases.