It seems strange to think that gender differences can not only affect the way in which we think about managing our finances but the practical needs and requirements too. But with 60% of the UK’s wealth estimated to be in the hands of women by 2025 (a trend seen throughout most countries) being cognisant of these differences will put you – or the women in your life – a step ahead.

What are the issues?
Even today, studies show that despite 85% of women running household finances, over half of women defer to partners to manage and make long term financial decisions. There are several reasons for this, but a lack of confidence saw women shying away from taking a more active role. With 3/4 of women aged 60 either single, widowed or divorced, relying heavily on a partner can leave them disadvantaged.

Women live longer than men and their finances must therefore last longer. Recent ONS statistics predicted a lifespan of 83.1 years for women, and where planning has not been put in place, or put in place with a male’s longevity in mind, women may find themselves struggling in later years.

Women are naturally more cautious and conservative, but over the long term, such investments have lower growth potnential. A YouGov study showed that 55% of women had never held an investment vs. 35% of men.
80% of companies are paying women less than men. A 2021 study by NEST showed that the average working woman could have a pay gap of £70,000 at retirement. Similarly, women are more likely to have taken time out of employment or reduce hours to care of children and/or elderly parents and relatives. These career breaks not only directly affect income, but can affect promotion or progression opportunities. This has a knock on effect on finances and women are seen to have approx. 51% less in retirement savings than their male counter parts.

These factors mean that women must take a different approach to men when thinking about their finances. This is something investment providers are recognising. For example BlackRock, the world’s largest fund manger, has recently launched investment funds geared at women and aimed at addressing and incorporating the issues women face.

What can you do?
Develop your understanding and relationship with money. Ask yourself why you have certain feelings or views around money. What makes you uncomfortable? When do you feel this? Why? Identifying your strengths and weaknesses will help you on your financial journey.

Make time to set goals and develop your financial plan. Your plan should be specific and realistic otherwise you are setting yourself up for failure.

If you are still working, know your worth. Women negotiate less than men when it comes to pay – 33% of women vs. 43% of men. Do your research, demonstrate your value and remember, if you don’t ask you won’t get!

Invest your money. Saving money is one thing, but how do you build wealth for the long term? The single most detrimental impact on savings is inflation. As things get more expensive, your income and savings must also grow to keep up, and cash or bank deposits are not a good inflation hedge. Whilst investing does carry risk, it provides the best opportunity for inflation beating returns in the long run – an opportunity for women to use their longevity in their favour!

Don’t be afraid of investing and use professionals to help you get it right. Statistics show that women make better investors, often achieving better returns than men. A study by Hargreaves Lansdown showed women’s returns outperforming men by 0.81% over 3 years (over 30 years this would result in a portfolio value of 25% more).

If you are already investing ensure that you review things regularly and pay close attention to your investments. It is not uncommon to see portfolios that have not moved in many years due to high fees or poor performance.

Take control and build your financial confidence. This maybe through education or working with professionals, but it will allow you to identify and take advantage of opportunities, achieve financial independence and peace of mind.

Recent times have been tough for bond prices due to rising interest rates and inflation concerns, but there are signs that the bond market could now offer some interesting opportunities for investors.

The bond market is much larger than the stock market with figures from Morningstar valuing the market at approx. $300 trillion compared with the stock market at approx. $124 trillion, so it is a significant market for investors to understand.

What are bonds?
A bond is simply a loan that an investor makes to a government or company in return for a set interest rate, known as a coupon. For example, if you buy a 10-year 5% US Treasury bond for $100, you are lending $100 to the US government who will pay you $5 each year for 10 years and at the end of the term, you get your original capital of $100 back.

Investors like the predictable income and the relative stability of bond investments. They also complement shares which tend to be more volatile e.g. when share prices fall and investors are nervous, they often flock to the relative safety of bonds, which pushes up the value of bonds to compensate.

There are many bonds to choose from, each with different levels of risk, and therefore return expectations. For example, instead of buying a US treasury bond, you could buy a bond in Apple or BP and because there is more risk in lending to a company than there in lending to the US government, you can expect a higher coupon of say 6% or 7% to compensate for this increased risk.

Recent market issues – an exceptional period
In simple terms, traditionally, the prices of bonds move in an opposite direction to interest rates so when interest rates rise, bond prices fall.

Given that interest rates globally have been steadily increasing for the last couple of years, bond prices have naturally suffered.

One unusual phenomenon we have seen is that stock markets have also performed relatively poorly so we have seen bonds and stocks falling at the same time. This is a very rare event which has only happened three times in the last 45 years and many commentators believe the normal diversification and inverse relationship between bonds and shares will resume going forward.

Last week, we saw that UK 30-year bond yields rose to their highest level since 1998 and similarly, US Treasury yields are at a 16-year high, despite high interest rates. So why is this?

From a UK perspective, the recent mini-budget included tax cuts and increased spending, something that will need to be paid for through increased borrowing. The government does this by selling more bonds. But more government debt without the economic growth to support it spells increased risk for the economy and it is this that triggered a large-scale sell-off of UK bonds, reducing the price and therefore increasing yields.

Looking forward
There are three supporting factors for a positive outlook for bonds:

1. As bond prices have fallen, the yield available to investors has increased substantially which supports bonds and the outlook for prices going forward. As a result, bonds may provide an attractive level of income, and at relatively low risk levels, which has not been seen for many years.

2. Figures from Vanguard, the world’s second-largest fund manager, show that bonds typically outperform cash in the three years following peak rate hikes dating back to 1980. The Federal Reserve, Bank of England and European Central Bank have all signalled interest rates are close to or have peaked already. The consensus is therefore that interest rates and yields should fall over time, and as prices move opposite to interest rates, bond prices should rise.

3. Bonds have historically performed better than shares and cash during recessions. With concerns still lingering about economies entering recessions, bonds could again offer value in a portfolio.

Of course, we always have to point out that history does not always repeat itself and things may happen differently this time, but the alignment of several tailwinds for bonds is a positive signal.

When a bond is not a bond
Please note that there are also tax structures known as “investment bonds” which are not to be confused with the bonds we’ve discussed in this article. Investment bonds are a form of tax wrapper and they are often used by residents of Portugal (as well as being efficient from a UK tax perspective) to hold and manage investment portfolios.

Even with diligent preparation and thorough planning comes a mild sense of apprehension as the big moment approaches.

How many guests will show up?

With explanations, practical examples, and responses to audience questions, our hosts highlighted how to invest securely, successfully and tax-efficiently, adding that professional guidance is (of course) essential for achieving the most favourable outcomes, and avoiding potentially expensive pitfalls.

Richard Flood and Lorraine Reddaway from RBC Brewin Dolphin complemented these presentations with an insight into investor psychology and the behavioural impact of emotional decisions on investment returns – perhaps unsurprisingly, inexperienced investors are often poor decision-makers when it comes to wealth management.

RBC Brewin Dolphin’s approach to stock selection and portfolio construction provided reassurance on the value of professional asset management.

Both seminars were well attended, with many guests requesting meetings for immediate help and advice.

Our team in Portugal are also running two workshops in November:

Covering a wide range of topics, our workshops aim to give you the knowledge to make good choices in all areas of financial planning, taxation and organising yourself for life in Portugal.

With an informal round table format, we will be discussing issues such as:

• How different types of pensions are taxed in Portugal
• Where tax should be paid on different types of pension income
• Double taxation and how to avoid it
• Drawdown options and the tax implications
• UK pension changes: LTA abolition, impact on taxation
• Tax planning opportunities: Pre-April 2024 planning window
• QROPS & QNUPS: Do you really need one or should you keep your UK pensions?
• How to pass on your pensions and the implications for your beneficiaries
• Open Q&A throughout

With rising interest rates, we have seen banks offering interest rates in excess of 4% or even higher with 1-year fixed terms. This coupled with the perceived risk of investment markets and the constant stream of negative news has left many wondering whether staying in cash is best.

Short term goals
Cash certainly has a place as an emergency “buffer” to allow for life’s unexpected events, and it is also sound financial planning to set aside sufficient for your short-term needs. Likewise, holding cash as part of an investment portfolio is important and it can help reduce the effects of volatility often seen in markets.

Cash as a long-term investment
Interest rates offered by banks to customers rarely beat inflation, so using this as a long-term savings strategy is not ideal.

Even with rising interest rates, the returns from cash are still negative when you consider that inflation currently sits at 7.9% in the UK, so investors are not getting any real returns. As an example, the negative effect of a modest 2% inflation on £100,000 over 10 years is £82,035 and £67,297 over 20 years.

However in the longer term, interest rate cuts are likely as the Bank of England is starkly aware that keeping interest rates high risks triggering a recession and destabilising the UK housing market. Central banks globally are also now close to pausing and then reversing recent rate hikes.

Protect yourself against inflation
Investing in high-quality company shares has been shown to offer inflation protection. Looking at long-term figures, Credit Suisse show that over a 123-year period starting in 1900, shares in developed equity markets have generated returns of 5.1% above inflation and emerging equity markets have achieved 3.8% over inflation.

The Credit Suisse figures also show that shares have outperformed cash (and bonds) in every one of the 21 countries its data covers over that 123-year period. This is quite remarkable given this period covers two world wars, two global pandemics, the great depression, the 2000 dot-com bubble, and the 2008 global financial crisis.

Opportunities elsewhere
Falling interest rates will provide opportunities elsewhere. For example, bond prices move in the opposite direction to interest rates so a future fall in interest rates is likely to result in capital gains on bonds, or holding shares allows investors to not only benefit from the increase in share price over time but income from dividends too.

If we look at the top 100 shares in the UK, analysts are expecting a dividend yield of 4.1% this year and 4.4% in 2024 and with the possibility for share buybacks added into the mix, this could be as high as 6% for 2023.

Tax considerations
Always consider the net interest rate you will earn. For example, a relatively attractive rate of 5% becomes a somewhat mediocre return of just 3.6% for a standard Portuguese tax resident who must pay 28% tax.

Also be cognisant that some of the more attractive rates being offered by banks in Guernsey and Jersey will have a higher tax rate applied of 35%, even if you are a Non-Habitual Resident.

The solution – balance
We believe a balanced approach of cash and investments makes most sense. The split however really comes down to your short- and long-term goals.

In short, cash is still king for short-term needs but for meeting longer-term income and growth objectives, stack the odds in your favour by using a sensible and well-diversified portfolio of shares, bonds and property. Coupling this with effective tax planning can lead to even more savings.

Lastly, Warren Buffet’s advice as one of the world’s most successful investors is, “The one thing I will tell you is that the worst investment you can have is cash. Cash is going to become worthless over time but good businesses are going to be worth more over time”.

(ETFs) – the investment “silver bullet”….?

Difficult times
With high levels of inflation and relatively low rates of returns on cash deposits, it is important to make sure your money is working hard for you.

In order to do this, investors will look to “real” investments i.e. assets that are expected to grow above the rate of inflation over the longer term – the main contenders are shares, bonds and property.

Make your money work harder
Whilst you can purchase individual investments direct, most investors choose to invest through a collective investment where you pool your money with other investors into a larger pot and appoint a fund manager to run this pot for you – in doing so, your combined value is larger and you can spread your investments much more widely which reduces risk. For example, the Vanguard LifeStrategy fund has approximately 22,000 underlying holdings.

‘Active’ versus ‘passive’ management
Active investors appoint a fund manager such as Fidelity or BlackRock to run the fund on their behalf and pay the manager a fee, typically between 1-2% per annum.

The alternative is to simply buy a basket of investments through a ‘tracker’ or passive fund – in this way, your fund will simply grow in line with the performance of the investments within the basket and do not have the personal involvement (and cost) of a fund manager overseeing the fund.

Examples of common trackers are those that mirror the S&P500 or FTSE100 indices, which are the largest companies trading on the US and UK stock markets respectively.

More money in your pocket with ETFs
ETFs are tracker funds that trade on a stock market and the major advantage is the extremely low fees, with annual charges on some ETFs as low as 0.01%. The savings in fees compared with active fund managers can make a substantial difference to the value of your investments over time.

As ETFs are traded in real-time on a stock exchange, they can be accessed quickly, with low costs and they offer access to a wide range of investments, from shares, gold and commodities to AI and environmental funds.

The devil is in the detail
Whilst Exchange Traded Funds certainly have a place in a well-diversified portfolio, there are important considerations when selecting them.

Tracking error – as the sole job of the ETF is to follow the index it is tracking; you must ensure it is following the market accurately. If it fails to track the market it could result in underperformance, and this can be more costly than the fee saving on the management fee.

Skewed risk – be careful that your portfolio is sufficiently diversified e.g. you may think that the S&P 500 is a highly diversified basket because you have 500 different underlying investments but the top 10 holdings make up around 35% of the value of the 500. The risk is very skewed to the big tech firms such as Google, Apple and Meta.

Another example of skewed risk is the MSCI World Index tracker. Although ‘world’ would suggest a globally diversified portfolio around 2/3rd is invested in the US alone.

Counterparty risk – there are different ways of tracking the market. The most secure is “physical replication” whereby the tracker simply holds the underlying investments of the index it tracks i.e. if you buy a FTSE 100 tracker, you will simply hold the 100 shares that make up that index.

The other main way is “synthetic replication” which means the index is tracked by using a complicated financial product supplied by another financial institution. In this situation, you have to think about the additional risk of that counter-party’s financial strength.

Other important points to have clear knowledge of are:

• The size of the fund
• The ETF’s domicile status
• The ETF’s tax residence
• Income treatment
• Currency of the ETF

In short, although Exchange Traded Funds and tracker investments are simple in principle, there are important nuances of which to be aware, especially when considering cross-border investment.

As always, when investing your hard-earned money, take guidance from a professional.

Many people have been attracted to Portugal by the very advantageous Non-Habitual Residence Regime, but many are concerned about what will happen to their spending power once the normal tax rates are applied. Mark Quinn and Debrah Broadfield look at the planning you should put in place to prepare your finances for the end of NHR.

What is NHR?
NHR is a preferential tax status granted by the Portuguese government to new residents and lasts 10 years. It offers greatly reduced tax rates on foreign-sourced pensions, employment income generated from ‘highly valued’ professions, tax exemption on foreign-sourced rental income, dividends and on real estate capital gains.

What it does not do is protect from capital gains generated from stocks and shares, company sales or dividends received from funds.

What happens after NHR?
You will become subject to standard rates of tax but your tax position will be determined by the planning (if any) you have implemented during the NHR period.

How to take advantage of NHR
The benefits of NHR are not automatic and you must plan to make the scheme work for you. This might involve rearranging your assets and income sources so you can fully take advantage of the tax breaks. For example:

If you are receiving a salary from an overseas company, dividend payments are preferable as these are tax-free, but a salary is taxable at either 20% (if a qualifying profession) or standard scale rates. Additionally, social security contributions will be due on salary payments, but not on dividends.

If you have foreign property you will want to sell this during the NHR period. Whilst rental income is tax-exempt during NHR, post-NHR it is taxable at scale rates. Similarly, capital gains on sale during NHR are exempt, but post-NHR 50% of the gain is taxable at scale rates.

If you are selling a UK company, you would want to structure the sale as a dividend pay-out, rather than a share sale. The former would be tax-free and the latter would be taxed at 28%.

If you have non-Portuguese sourced savings and investments, interest and dividends from direct equities are tax-exempt (strictly, dividends derived from funds are taxable under NHR) but after NHR, they are taxable at 28%. Capital gains however are not protected under NHR. Gains realised e.g. by selling or switching your investments, are taxable – even if you do not have the gain physically paid out to you and they remain within the investment portfolio/ISA/platform. If the investment holding sold was held for more than 365 days the tax rate is 28% but if held for less, then it is taxable at scale rates of tax. The capital gains tax can be mitigated by restructuring these types of holdings within approved tax wrappers.

Pension income is taxable at 10% under NHR (or 0% if you have pre-31st March 2020 NHR). Post-NHR, generally pensions are taxable at scale rates so some individuals aim to deplete their pension over the NHR period. Just bear in mind however that this might not be suitable for everyone, as moving pension savings out will expose them to UK IHT. Do note, that QNUPS are often sold as a ‘silver bullet’ to protecting assets from UK IHT but this is not the case. There is no guarantee of tax-exempt status and HMRC are vigilant when assessing potential tax avoidance on death.

What can you do to plan?
Portugal does offer very advantageous tax breaks for those that use approved long-term savings vehicles, and it is not dependent on your NHR status. These shelter ongoing income and gains from tax and tax is only applied to gains when you make a withdrawal at 28%. Additional tax reductions apply after years 5 and 8 reducing the tax rate to 22.4% and 11.2%. Having said this the right jurisdiction must be chosen otherwise you could be subject to a punitive rate of 35%.

A particular advantage is that the tax reduction time limit is applied to the start date of the structure, not each time monies are added. This means you can start the structure with a small sum and add to it over time say, as you sell foreign property, drawdown your pension or sell a UK company.

The ideal position is to establish the structure when you are at the beginning of NHR so that by the end of the NHR period the structure is at its maximum tax efficiency.

Many individuals draw on their pensions and dividends during NHR tax efficiently and accelerate the drawdown towards the end of the 10 years to fund the tax-efficient investment. They may also sell property or companies during the NHR period and reinvest the proceeds in preparation for the end of NHR. Then after NHR, they switch the income source to the new investment and generally enjoy single-digit or very low double-digit effective rates of tax.

You are probably quite au fait with your home country’s investment structures, options, and practices, but what happens when you move abroad? Just because your investments are tax efficient in one country does not mean that the tax advantages will transfer to another.

Mark Quinn and Debrah Broadfield look at the taxation of typically held investments in Portugal and what options are open to residents looking to legally shelter from taxation.

Bank accounts

All bank interest is reportable and potentially taxable in Portugal, irrespective of where the account is located or if you use it or not.

If you have Non-Habitual Residence (NHR), interest earned on foreign accounts is tax-exempt, unless the account is held in a blacklisted jurisdiction such as Guernsey, Jersey, or the Isle of Man, in which case it is taxed at 35%.  So, if you are still holding large sums in these ‘tax havens’ you should consider restructuring this.

If you are a non-NHR, all bank interest earned on foreign accounts is taxed at 28%. Similarly, interest from Portuguese bank accounts is always taxed at 28%, irrespective of your NHR status.

Dividends

We usually see individuals with dividends paid from their own companies, directly held shares, or investment portfolios. This is a great source of income if you are a NHR as these are tax-free in Portugal during the 10-year period.

It is worth thinking about what you are doing with the income once received. If you are not spending it all and it is accumulating in a bank account earning little or no interest, you should consider investing this in a tax-efficient manner to get your money working for you.

For normal residents, dividends are taxed at 28% but there is the potential for tax savings if you can restructure.

Property

Foreign-sourced property income is reportable in Portugal but is tax-exempt during NHR. Post-NHR, this income is taxed at scale rates (up to 48% plus solidarity tax at 2.5%/5%) with a credit given for tax paid in the country where the property is located (if there is a double tax treaty).

NHR does provide a unique tax-saving opportunity when selling a foreign property. Usually, 50% of any gain on sale is taxed in Portugal at scale rates, but if sold during the NHR period there is no tax to pay. Do note however that tax may still be due in the country where the property is located.

Striving for tax efficiency

One of the most common and tax-efficient ways to save is within an ‘offshore investment bond’. Such structures are recognised throughout most of the EU and in the UK.

Unlike a standard investment portfolio, that attracts capital gains and income tax as it arises, gains within an investment bond grow free of both income and capital gains tax. This is also known as ‘gross roll up’ and works in a similar way to a pension or a UK ISA.

The other main advantages over directly held investments are:
– You can control the timing of taxation. With standard investment holdings, when income or dividends are produced, they are deemed paid (whether actually paid out to you or not) and are taxable on an annual basis. With a tax-sheltered structure, income and gains are only taxable when a withdrawal is made.

– Withdrawals are very tax efficient. Withdrawals are split into capital and growth and tax is only payable on the growth. Although the tax rate on the growth element starts at 28%, you enjoy a 20% tax reduction after 5 years and a 60% tax reduction after 8 years.

It is worth knowing that this preferential tax treatment is enjoyed by both NHRs and standard Portuguese tax residents. And because the structure becomes more tax efficient over time, these are great long-term planning tools for those with NHR who intend to remain in Portugal once they are subject to the standard rates of tax post-NHR, or for long-term residents without NHR.

– These structures offer a unique tax planning opportunity for those who might return to the UK in the future. Under UK rules, only investment growth generated whilst resident in the UK is taxable. So, for those who have spent many years abroad in Portugal, this can create the opportunity for very advantageous tax planning on a return to the UK.

Lastly, choosing the right jurisdiction and provider is essential to ensure compliance in Portugal. You will also want to avoid jurisdictions with withholding taxes and bonds located in tax havens, as these are punitively taxed at 35%.

One of the most confusing aspects for expats is establishing where they should be paying tax after they have left the UK. Many just assume that there is no UK liability after they have left.

UK property
Tax on income and gains from UK property is always taxed in the UK, even if you live in Portugal with or without NHR status. You do still have your UK annual personal allowance and capital gains tax allowance to offset against any taxable income or gains as a non-UK resident.

You must also declare this in Portugal and will receive a tax credit for the tax paid in the UK to offset any Portuguese tax liability.

UK government pension income
The taxing right remains with the UK in respect of former government service pension income, and you have your UK personal allowance to offset against this.

Government service pension schemes are not the same as the UK State Pension. The State Pension is not taxable in the UK, can be paid out to you gross and is taxable in Portugal.

UK private pension schemes
Private pension schemes are taxable in Portugal. Again, the income can be paid out to you gross by your pension provider. However, in practice, some people still find themselves having tax deducted at source on UK pension income and must reclaim it. If you complete a DT/individual form, available from HMRC’s website, and follow the submission process you will be able to receive your pension free from UK tax at source.

UK dividend & interest trap!
The UK has the right to tax UK-sourced dividends and interest under the treaty rules between the UK and Portugal but an interesting quirk of the rules is that when you submit your UK tax return HMRC will automatically calculate the best outcome for you; either to not tax your UK dividends and interest and in turn, you lose your UK personal allowance (this is called disregarded income treatment) or to tax them and preserve your personal allowance to offset against other income e.g. rental.

Special care must be taken if claiming split-year treatment – this is when you leave the UK partway through the tax year and you are only taxed in the UK from 6th April to the date you leave. A real-life example: an individual who left the UK in July subsequently took a large dividend in the same UK tax year. As a result, the dividend was taxed in the UK (even though they were no longer UK resident) and this resulted in a hefty tax bill. Had they waited until after the following 6th April, HMRC would not have taxed this.

Exceeding your UK day count
Another scenario where you could find yourself a UK tax resident, even though you have moved abroad, is when the relevant day count allowance is exceeded. The UK Statutory Residence test clearly sets out the rules and the allowable number of days to avoid getting yourself into this grey area. The day count can be as little as 16 days and as much as 182 days depending on the number of ties and connections you have.

UK Inheritance Tax
Another context when you can still have a UK liability is in respect of succession and inheritance tax. This is a complicated area, and we will dedicate next week’s article to exploring this topic.