These days, investment portfolios reflect the often global and complex lives which the HNW and their families live.  Non-traditional assets such as global real estate, private equity – regulated and non-regulated – and securitisation vehicles are becoming more the norm than the exception when dealing with international wealth.

OneLife is well-placed to take on and value non-traditional assets as part of a life assurance contract, integrating them into the client’s global wealth solution no matter how diverse the portfolio. This has the benefit of giving our clients and their advisors a clear overview of their portfolio as a combination of both traditional and non-traditional asset classes.

Our dedicated team of Unquoted experts carefully analyses each asset within the portfolio to ensure it meets tax and regulatory requirements.  A thorough understanding of cross-border jurisdictional matters is necessary to allow us to assess the risks of a broad range of assets.

This is in line with OneLife’s strategy to offer comprehensive, flexible and up to date wealth solutions for its partners and clients.  OneLife’s expertise is backed by Luxembourg’s insurance regulation which not only allows a wide range of underlying investments in internal funds but also regularly updates and enriches the arsenal of unlisted related tools like Specialised Insurance Fund (SPIF), a self-management solution, as well as other structures. The regulator’s pragmatic approach offers interesting and flexible wealth planning opportunities to individuals with different tax jurisdictions by considering the potential benefits and risks.

Non-traditional assets were on the agenda of OneLife’s 10^th Investment Forum held on 19^th October in Brussels.  This year’s anniversary event gathered together over 550 visitors, 40 fund houses … and included 38 working sessions on diverse themes. 

Anthony Lorrain, OneLife Director Non-traditional Assets and Liana Aghabekyan, OneLife Financial Assets Analyst, held a panel presentation for an international audience giving insight into current topics such as, Why is Luxembourg Life Insurance particularly suitable for the non-listed world?  How can non-traditional assets be integrated into life insurance contracts?  Unlisted in regulated or non-regulated environments: risks associated with non-traditional assets.

OneLife is a member of the Luxembourg Private Equity & Venture Capital Association (#LPEA).  With over 120 members, LPEA plays a leading role in the discussion and development of the investment framework and actively promotes the industry beyond the country’s borders.

  To learn more, please contact Anthony Lorrain or Liana Aghabekyan.

Like a long-awaited sequel to a lacklustre premiere, the second Finance Bill for the year (Finance Bill 2017-2019) was published on 8 September, to little surprise. Much of its content was present in the Spring Budget, but delayed because of the June general election.

The bill is expected to be enacted by Parliament before the Christmas recess and will be known as the Finance (2) Act 2017. New rules (which by now are familiar to most advisers) affecting UK-resident non-domiciled individuals, familiarly non-doms, will have retrospective effect from 6 April 2017.

Deemed Domicile rule

Most notably, the bill has reduced the time threshold for acquiring deemed domicile status. Long term non-doms who have been in the UK for 15 of the previous 20 years will now be deemed domiciled for ALL tax purposes. They will lose the benefit of the remittance basis option for income and capital gains and be taxed under the same regime as a UK resident and domiciled person.

In addition, individuals who were born in the UK with a UK domicile of origin, but that at some point acquired a domicile of choice elsewhere, will be prevented from claiming non-domiciled status if they return to live in the UK.

Deemed domicile status will cease after four consecutive tax years of non-residence. However, individuals who wish to return to the UK at some point and restart the clock will need to remain a non-resident for six consecutive years.

This measure is a clear signal by the government of its intention to close the gap between the benefits available under the non-domicile taxation regime and the situation of UK resident and domiciled individuals.

Transitional relief

Rebasing
In the light of the new deemed domicile rules, the bill offers some transitional relief to non-doms. Individuals who become deemed domiciled for capital gains (CGT) and Income tax from 6 April 2017 will be able to rebase the value of their non-UK assets at that date, provided they have paid the remittance basis charge at least once since its inception in 2008. They will also be able to remit tax-free any gains realised on these non-UK assets after 6 April, as long as the gains are attributable to a period before this date.

Mixed Funds
The bill also offers remittance basis users a two-year exemption from the mixed fund rules to enable them to segregate their capital from the income and gains in their bank accounts. This will facilitate greater certainty around taxation, as well as provide clean capital with which to invest in the future.

Offshore trusts

The bill confirms that excluded property trusts set up before a non-dom acquires deemed domicile status will continue to be outside the UK’s inheritance tax (IHT) net. In addition, settlors of these trusts will be protected from the attribution rules on income and CGT as long as certain conditions are met. As a result, these assets will not give rise to a tax liability unless they are made available to a UK resident.

Personal portfolio bonds

The personal portfolio bond (PPB) rules contained in section 520 of ITTOIA 2005 have been amended slightly. These rules are designed to prevent UK residents avoiding taxation on personal assets by placing them in a life assurance policy by restricting the classes of investment that can be placed in a policy. The bill adds three additional classes of investment which may be held by life policies without falling foul of the UK’s onerous anti-avoidance legislation and incurring what is known as a PPB tax charge.

Inheritance tax on residential property

From 6 April, any UK residential property held by an offshore company or trust will be subject to IHT.

Conclusion

Whilst the removal of the remittance basis option means more rain in the weather forecast for the non-doms, the good news is that prudent planning can now proceed under the umbrella of tax certainty.

With these legislative changes combining with the uncertainty engendered by Brexit, non-doms can take comfort in the favourable planning options that remain available to them and that offer the same protection as before, such as excluded property trusts and life assurance products.

  To learn more, please contact Paul Pugh. Article by Stacy Lake.

The contents of this newsletter are subject to the restrictions and legal provisions indicated on OneLife’s website.

Portugal has long been known as a tourist destination for its amazing weather, delicious food and world-famous wine. But closer examination of the country reveals that it has much more to offer than codfish, port and holiday sunshine. High net worth individuals should look carefully at the multiple advantages offered by Portugal for establishing residence.
At the meeting point of three continents, the Iberian nation boasts an advantageous geographic location and excellent transport connections both to the rest of Europe and overseas destinations. Once the hub of a colonial empire, it offers touristic sites full of history and impressive architecture redolent of past imperial glory. This period has left a permanent mark in the country’s deep cultural ties with Brazil, India (Goa), China (Macau) and Portuguese-speaking countries in Africa. But today Portugal is a strongly-rooted democracy with a dynamic economy that has emerged from many years of economic struggle.

Whether in the northern Douro Valley wine region or on the southern Algarve coast, the country offers excellent quality of life at low cost and a very attractive fiscal regime with no wealth or inheritance taxes. Portugal has also an extensive double tax treaty network to mitigate the risk of double taxation of income earned in multiple countries. In addition, the government has stimulated inbound mobility by creating the Non-Habitual Residents regime and the Golden Visa programme.
An individual may qualify as a NHR by registering as a tax resident in Portugal, as long as they have not been tax-resident in any of the previous five years. Individuals meeting this condition may benefit from the special regime for a 10-year period, involving a special tax rate of 20% applicable to work-related income from high added value activities as well as tax exemption for foreign-source income.

The Golden Visa programme offers a special residence card for foreigners meeting an investment criterion, including a minimum €1 million capital transfer or the purchase of real estate worth at least €500,000, allowing investors to live and work in Portugal. The residence permit also allows visa exemption for travel within the Schengen Area and the opportunity to apply for permanent residence or citizenship.

Once they decide to move to Portugal, high net worth individuals must meticulously assess the most efficient and compliant way to structure their wealth.

Advantages of a foreign unit-linked life product

Until 2015, it was still advantageous to establish a foreign trust or foundation in order to enjoy untaxed distributions after transferring one’s tax residency to Portugal. However, following major amendments to national tax law, sums distributed by fiduciary structures to Portuguese residents are now treated as investment income subject to a 28% income tax rate. In addition, these structures are fully targeted by CFC and transparency rules for past years.

These changes have necessitated a review of the use of these tools, opening the way for more efficient means to structure the wealth of Portuguese tax residents.

Unit-linked life insurance is a structure fully recognised and compliant in Portugal. Since it entails a savings regime for individuals, it enjoys favourable tax treatment. By comparison with traditional fiduciary structures, it can be a more effective means of investing and transferring wealth in a flexible and tax-efficient way. Although many people in Portugal are not yet very familiar with this structure, demand has been increasing in recent years as the high net worth community and its advisors learn about the product and its benefits for wealth structuring and asset protection.

This dynamic product can offer cross-border flexibility and the unique security of a contract issued in Luxembourg, a leading investment jurisdiction that offers the protection of a rigorous regime popularly known as the Triangle of Security. In addition, Luxembourg offers tax neutrality since taxation is based on the policyholder’s country of residence.

Moreover, contracts can be tailored to provide portability if individuals relocate between various jurisdictions during their lifetime. They can access a flexible and wide range of underlying assets, including external investment funds and internal collective funds, as well as dedicated funds that offer discretionary management according to the policyholder’s personal objectives. Another interesting feature is that clients may withdraw a portion of their original investment if needed.

Regarding taxation, the attractive treatment of unit-linked life insurance in Portugal provides gives extremely broad scope for inheritance and tax planning. For death claims, life insurance benefits are tax-free, not being subject to either income tax or stamp duty. In the case of surrenders, only the portion exceeding the amount initially invested is subject to taxation. If at least 35% of the total premiums are paid in the first half of the policy lifetime, either one-fifth or three-fifths of the income may be excluded from taxation in cases where the surrender takes place after five or eight years respectively of the contractual period, which could result in an effective taxation rate as low as 11.2%.

All these factors mean that unit-linked life insurance may be the best option for individuals to hold financial assets that can produce income to be distributed throughout their lifetime. If properly structured, it can be the most efficient wealth management tool, since it offers great flexibility in terms of investment and a more attractive tax regime than other options.

In a changing world where transparency is de rigueur and control is a priority for investors, unit-linked life insurance facilitates compliance with the evolving legal, regulatory and fiscal environment, at a time when certain traditional structures risk losing competitiveness and relevancy.

  To learn more, please contact Andre Piovezan. Article by Taiza Ferreira.