If you’ve worked hard and invested prudently over the course of your life, it’s very likely that the Inheritance Tax (IHT) or Estate Duty tax system can be a disconcerting and foreboding spectre on the horizon. In the UK, it is estimated that HM Treasury will take £6.9bn in IHT receipts by 2024, and in South Africa, the estate duty tax is levied at 20% on the first R30 million and then 25% on the value above R30 million, no one wants to add unnecessarily to this already leviathan figure.

Fortunately, there are ways you can structure your wealth to pass it on tax-efficiently. However, this process needs to begin many years before death so that you have plenty of time to decide upon the identity of your beneficiaries and to make gifts, create structures/vehicles, and plan your tax liability.

There is no Short-Term Solution

As an expat in Portugal, inheritance planning that relies on a simple fix-all strategy or single product is unlikely to reflect the complexity of your cross-border inheritance planning needs.
Instead, you should consider seeking the advice of an experienced, local wealth manager who can listen to your goals and circumstances in order to develop a bespoke solution which considers all the jurisdictional issues that may affect your estate when you die.

Your plan should be about much more than simply ring-fencing wealth, it should also be about considering the needs of your beneficiaries and finding a strategy that ensures a smooth transition of wealth. In most cases, this will involve informing your beneficiaries of your plans so that they can prepare their own finances to make the best use of your generosity. You may also want to introduce them to your adviser as this can greatly assist the whole process, both now and in the future.

Be Clear About the Present but be Ready to be Flexible in the Future

Although you will inevitably have to account for the inheritance planning regulatory and legal burdens currently in place, you will also have to build flexibility into your plans so they are capable of responding effectively to any changes which might occur in the future.

Tax rules rarely become simpler or less onerous over time, but by making the most of existing exemptions and gifting rules, while also retaining some flexibility, you increase your chances of passing on your estate with the minimum of tax liability.

A good financial adviser can help make you aware of potential legal and regulatory complexities as well as the many opportunities in this regard – for cross-border individuals this can be especially complex. A local advisor will make all the difference, as they will have the expertise and knowledge of all the local tax rules and will keep you up to date with any relevant changes made, minimising your tax liability and maximising your wealth

Look After Yourself First and Foremost

Whether your beneficiaries are going to be children, grandchildren, other family members or indeed charitable organisations, your inheritance plan should begin by ensuring that you have made adequate provision for your own security and cashflow needs.

This should involve finding the right balance between what you will need to live on and what you want to give away; it can be dangerous to gift too much when there is a reasonable possibility that you might live to a ripe old age and perhaps require medical or nursing care in later life. It’s all very well making substantial gifts to keep your hard-earned money out of the hands of Revenue and Customs, but if you end up selling yourself short, your sunset years could easily become frugal and difficult.

Gifting is Not the Answer to all inheritance issues

No matter how generous your intentions, if you cannot make gifts with confidence, you should reconsider your plans – your loved ones are unlikely to want you to gift them your assets if doing so precipitates your financial demise. Ask yourself the following questions as they will help you determine whether you have the capacity to give.

  • Have you analysed your cashflow needs?
  • What is your time horizon? (How long are you likely to live?)
  • How much money should you put aside for care costs?
  • How will any gift you make eat into your assets’ ability to generate interest/dividends?
  • Would a loan be a better option than a gift?

Blacktower in Portugal

Blacktower is an experienced wealth manager with offices in Lisbon and the Algarve. Speak with us today so that we can help you assess your wealth and its future.

For more information contact Blacktower on: 289 355 685, email: info@blacktowerfm.com or visit www.theblacktowergroup.com
This communication is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice form a professional adviser before embarking on any financial planning activity.