December 1, 2021
Luxembourg life assurance is a flexible wealth management tool and can be fully adapted to the situation and needs of various clients. In addition to asset protection and a wide investment universe, it offers international portability, an important aspect for expatriate clients. So, what are the possibilities available to a UK expatriate client looking for a solution which will remain compliant when they return to the UK? Our case study helps to answer this question.
About our clients
John and Anne Smith,both British nationals and resident in Marbella, Spain (fiscal residency). They have two children: Jonas and Eva, both living in the UK
Objectives of our clients:
- To have a single platform to manage John’s investments, regardless of their nature.
- To manage the wealth and tax aspects of a future move back to the UK
1.1 Initial situation
John and Anne Smith are married under the separation of property regime and currently reside in the city of Marbella (Spain), where Anne runs an English language academy. John is an investment consultant for several family offices and private banks in the southern region of Andalucía. He divides his time between the family home in Marbella and the cities of Malaga and London, where he often travels for work.
John and Anne have two children, Jonas and Eva. Eva is 27 years old and teaches at a secondary school in Cambridge. Jonas is 30 years old and has established himself as an independent consultant in London.
John has a private wealth, distributed as follows:
- GBP 2 million in a portfolio of listed assets held under deposit in a local private bank in Spain.
- An inherited house in Canterbury worth GBP 350.000
- A rented apartment in Marbella worth EUR 250.000.
1.2 Life plan | objectives
At 55, John still has a good professional career ahead of him, although he’s planning to move to the UK with his wife in 5/7 years’ time, in order to live closer to the family. At that time, John would sell off his investment consultancy business to a large brokerage firm and his wife would also sell the English language academy to a new entrepreneur.
John’s objectives are therefore as follows:
- To hold a wealth and estate planning tool to ensure that the couple’s future move takes place in the best possible conditions from a financial and tax point of view.
- To have a unified platform where John would have a complete view on all his assets and could manage his investments.
1.3 OneLife solution
John knows that a tailor-made solution based on a Luxembourg life assurance contract would achieve both objectives. With the help of OneLife experts, the following international solution is offered:
- John applies to a Luxembourg life assurance policy which is fully compliant with local Spanish regulations while still residing in Spain. John is the policyholder and insured person.
- John’s listed assets are integrated in one policy (). The assets are managed either on a discretionary basis by an external manager or by John himself in case he restricts himself to a predefined list of investment funds.
- Anne and their two children are named as beneficiaries in the event of his death, so that they can dispose of his assets according to his wishes.
- The local private bank in Spain, or any other reputable custodian bank among OneLife partners, could serve as custodian for John’s assets.
1.4. From a tax point of view – relocating to the UK
- Income generated by the underlying investments during the life of the contract will be tax deferred in Spain and hence avoid an ongoing taxation of up to 26% on the yield generated under the Policy. Taxation will only arise in Spain in case of partial or full surrender. That will be the case upon the condition of complying strictly with local Spanish tax rules on life assurance (or “bonds”) unit-linked products with respect to the management of the assets and the minimum death cover required in order to qualify as an insurance product locally.
- When relocating to the UK, no “exit tax” will apply in Spain on any latent gain generated under the policy. Such “exit tax” could apply when holding directly financial investments in a personal portfolio, reason for which, life assurance offers a significant advantage.
- When becoming UK tax resident, the policy will serve as a tax deferral instrument as long as it complies strictly with local tax legislation and guidance provided by the UK HRMC. One of the key points of attention lies in the so-called “PPB rules” Under PPB rules, discretionary managed portfolios and investments in collective investment schemes are typically allowed, but other investments where the policyholder could have an influence or management decision over are typically excluded.
Thanks to the support of OneLife, John applied to a tailor-made solution perfectly suited for him and his family’s needs. He benefits from a comprehensive and tax efficient solution for his private wealth, also a compliant bond that evolves according to his country of residence and which ensures that the family is well protected in case of his own death.
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