August 13, 2020
In the first part of our 2-part case study blog on International Planning, let us introduce you to a UK National couple, Mary and James. And let’s consider how a Luxembourg life assurance solution can help them to build a flexible investment strategy and inheritance planning in their international environment.
About Mary and James
Mary and James, both UK nationals, married in London where they had a busy life with their kids, Harry and Sally, and their successful careers as investment bankers. Today retired and 65, they are enjoying the sun of the South of France, where they moved while their kids remained UK domiciled. They plan to return closer to family in the UK at a later stage, probably in 15 years’ time.
With £2m cash available for each and a £100,000 annual pension, they are looking for a tax efficient investment solution and an appropriate succession planning tool.
They are also keen to preserve their cash in sterling currency.
Keeping it efficient and simple with Luxembourg life assurance Widely recognised in Europe as an attractive tool to hold and transfer family wealth, Luxembourg life assurance solutions prove to be the best option for Mary and James, in the international context of their family. While being French residents, they decided to apply for two Luxembourg whole of life insurance products. One with Mary as policyholder and life assured with James and the two kids appointed as beneficiary for a third each. And the second one with the same set up for James.
Choosing a Luxembourg based solution provides:
- Tax neutrality
Luxembourg life assurance contracts are designed to comply with the legal and tax requirements of the policyholder’s country of residence.
=> As French tax resident, Mary and James’ contract is recognised by French law. When moving to the UK, Luxembourg tax neutrality enables the contract to be adapted to UK law with no tax impact in France and Luxembourg.
- Multi-currency possibilities
As Europe’s number 1 investment fund centre, multi-currency is part of Luxembourg’s DNA.
- Mary and James can invest their premium in Sterling within a policy denominated in Sterling. Underlying investment can be in Sterling as well or any other fund currency they may wish.
- A tailor-made investment solution
Luxembourg‘s innovative financial services centre offers a wide panel of investment solutions with:
- Assets managed collectively within an Internal Collective Fund (ICF) or individually within an Internal Dedicated Fund (IDF, instrument for Discretionary Fund Management) or with the Specialised Insurance Fund (SIF) expanding investment possibilities from large UCITs funds banking platforms to Non-Traditional Assets
- Wider investment strategy flexibility than some other EU countries
- Private equity, green finance and socially responsible investment funds as powerful areas of development.
=> Mary would like to delegate her asset management to a professional. Hence, she opts for an IDF with discretionary management. She is concerned about taking on risk and so opts for a prudent investment strategy.
=> James prefers to remain involved in the management of his assets and choses the SIF investment vehicle. He can receive investment advice from his Financial Advisor and stay in charge of the final investment decision. He is looking for high performance and is comfortable in taking higher risks, so he defines a dynamic investment strategy.
- Portability = peace of mind
Luxembourg’s solutions can be adapted to the local regulation of another country in the event of a move.
This is particularly simple when the future relocation is communicated prior to the initial policy inception. Some portability features can be directly adapted.
=> Mary and James initially applied for a death cover being optional in France while necessary in the context of their move to the UK.
When the client relocates, the financial adviser should inform the Life assurance company in order to check the contract’s portability possibilities and specific requirements. When moving to the UK, the investment solution may have to be aligned with the UK’s investment restrictions.
=> With a death cover already applied and an IDF investment, Mary’s policy already complies with UK local rules.
=> As UK tax law requires that the policyholder has no influence over the portfolio investments, James need to switch from the SIF solution to the IDF with discretionary management. From then on, an independent authorised discretionary fund manager will manage his portfolio staying in line with his dynamic strategy if he so wishes.
In the second part of our blog, we will find out how a Luxembourg product brings benefits to James and Mary’s investment strategy and inheritance planning.
“These illustrations are merely an overview of some of the implications of cross-border inheritance/wealth planning therefore practical impact should be assessed on a case-by-case basis with your adviser”