Could the UK government take up to 60% of your pension?
The Institute for Fiscal Studies (IFS) published a paper on 15th December 2022 recommending that the UK government introduce a basic rate (20%) income tax charge and Inheritance Tax (IHT) at 40% on monies left in UK pensions on death, regardless of age.
Viewing posts categorised under: Portugal
How much could the UK tax my pension?
By Portugal team
This article is published on: 6th February 2023
06.02.23
Generosity of current rules
Under current rules, your pension can pass to your beneficiaries free of UK Inheritance Tax (IHT), rather than being subject to the standard 40% rate. Additionally, if you die before age 75, your beneficiaries do not need to pay any tax on drawdown/lump sums. If you die after 75, and your beneficiaries are UK tax resident, they are subject to income tax at their marginal rate.
This is what makes pensions so valuable for tax planning and advisers will usually recommend that they are maximised and preserved, and that other assets subject to IHT are used to fund spending first, to reduce the value of your estate.
What could change?
The IFS pointed out that the current tax rules on UK pensions are very generous and pensions have become a succession planning tool rather than one for retirement provision.
Experts are musing that the UK government could change these generous IHT rules; many say this is overdue. More worryingly, they are anticipating a potential change in 2023.
The IFS recommended that a basic 20% rate is applied to any pension savings left on death, irrespective of age. Also, the pension should form part of the deceased’s estate for IHT, incurring a further 40% tax.
Why the change?
Simply put, changing the pension IHT rules would fill a big hole in the Exchequer’s coffers by bringing millions of pensions into the IHT net. It would also persuade many people to start spending their pension pots and in turn, pay income tax on the drawdown during their lifetimes.
The report explained how the generous UK pension rules specifically in relation to IHT have caused a “bizarre situation” where instead of pensions primarily being an attractive structure for old-age-planning, they have become a lucrative IHT loophole. The IFS also pointed out, “if we are to have an inheritance tax at all, it should apply evenly across all forms of wealth.”
We have also seen pensions being periodically targeted over the past decades, with taxation and limits applied in the form of Annual Allowance, Money Purchase Annual Allowance and the continuing reduction of the Lifetime Allowance, from £1.8.m in 2011/2012 to £1,073,100 in the tax year 2022/2023 – all with the aim of curbing the tax benefits. There are even serious talks of bringing the increase in the UK State Pension age forward from 2046 to 2035.
Will this affect you?
Those with estates valued in excess of £325,000 (if single) or £650,000 (jointly), including pension values, would be affected by any potential change.
It is unclear how any potential change would be introduced, although the IFS has suggested phasing in changes. It is also unclear if existing benefits would be sheltered from the change or if the rules would be retrospective, thus catching all pension savers. Although, the IFS did say that even with phasing, there would be some retrospective taxation effect.
What should you do?
Of course, there is no guarantee this will happen, but if changes are imposed there may be little or no opportunity to restructure your pensions. As a non-UK resident, you can take action now and review your finances to ensure you are protected.
The financial implications of your SEF appointment
By Portugal team
This article is published on: 31st January 2023
31.01.23
Brexit pushed many British expatriates to apply for residency – Immigration and Borders Service’s desk / Serviço de Estrangeiros e Fronteiras (SEF) to be able to stay more than 90 days in every 180 within the Schengen area, but what some may not fully understand are the implications.
Triggering tax residency
When applying for residency in Portugal you are effectively declaring your intention to stay in Portugal for more than six months. Staying in Portugal for more than 183 days a year will trigger tax residency and financial reporting obligations; you cannot simply continue paying taxes in the UK.
Brits must also be mindful of the UK statutory residence test because this could inadvertently entangle you in the UK tax net if too much time is spent back in the UK, even if you are declaring yourself as a Portuguese tax resident and spending more than 183 days in Portugal. This is not something you want to be caught up in, especially if you intend to take advantage of Portugal’s Non-Habitual Residency (NHR) scheme. You want your tax residency status to be clearly in Portugal.
Tax liabilities in Portugal
Tax residents of Portugal must declare their worldwide income and gains in Portugal.
For those with assets in several countries, you might also have tax and reporting obligations in the jurisdictions where you hold your assets. For example, UK rental income always remains taxable in the UK and is also reportable and taxable in Portugal. Conversely, UK tax is not due on UK pension income (unless it is a government scheme), but it is fully reportable and taxable in Portugal.
Whether you will pay tax twice depends on the Double Taxation Treaty between the two countries, but there are usually rules in place to avoid this happening.
Make the most of it
New residents of Portugal can apply for NHR which gives generous tax breaks on foreign-sourced income and in some cases, Portuguese arising employment income, for a period of 10 years. However, the right planning and preparation is needed, and you may need to restructure your affairs to take full advantage of the scheme. Once the NHR period ends, normal Portuguese tax rates apply.
NHR certainly provides generous tax breaks but what many do not realise is that it is also a ‘window of opportunity’ where you can plan for a tax-efficient future after NHR. For example, it is much more tax advantageous to dispose of overseas property during the NHR period when gains are exempt in Portugal, rather than post-NHR when 50% of the gain is subject to scale rates of tax.
Even for those without NHR, there are compliant structures that can reduce or eliminate income and gains tax for significant long-term tax savings. Ideally, such structures are funded during the NHR phase, so it is never too early to start planning.
Expatriates have complicated affairs: tying up loose ends in their home country, navigating the legalities and processes in Portugal, keeping track of what taxes are due where, and ongoing compliance with changing tax rules in various jurisdictions. With so many moving parts it is important that planning is not done in isolation, it is reviewed regularly and undertaken with experienced and qualified advisers.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6 CII) and Tax Advisers (ATT) with nearly 20 years of combined experience advising expatriates in Portugal on cross-border tax and financial issues. Find out more at spectrum-ifa.com or contact us at +351 289 355 316 or mark.quinn@spectrum-ifa.com.
Protecting your wealth
By Portugal team
This article is published on: 20th January 2023
20.01.23
What can you do in turbulent times?
With rising inflation, war, political instability and the energy crisis, 2022 thus far has been a perfect storm and markets have responded. What action do you need to take to protect your wealth?
Review your position
The single most important thing you must do is act and not bury your head in the sand. Whether you have recently made changes or have never taken any action, you should be taking a look at:
- Structures: Are they correct for you in Portugal or are you still holding on to investments you made whilst resident elsewhere? Are you taking advantage of all the tax reliefs? Unnecessary taxation is extremely damaging to family wealth
- Cost: Check what you are paying as this is an eroder of wealth; especially when markets take a downturn. Are they convoluted and hidden in lots of paperwork? Are they competitive? Are you receiving a competent level of service for the fees you pay?
- Risk: Do you know how much you are taking? Are you being compensated for it or can you achieve the same return elsewhere without taking as much risk? A robust investment portfolio is a diversified one that is risk rated to your appetite for risk and capacity for loss
- Holdings: Are they suitable for you and your goals? Are they liquid or are they at risk of being suspended? You do not want to need money only to find you are ‘locked in’, have penalties or your investment has been frozen
- Performance: Are your investments performing well in comparison to the market? Poor performance can be a result of many factors, such as relying on past performance, excessive charges, manager performance, inaction, market movements or taxation, to name a few
Work with experts
Taking sound advice comes with a cost but could save you a lot of money in the long run. Whether that be in income, capital gains or inheritance tax, improved investment returns or preservation in the downturns. It will also provide you and your family peace of mind.
How do you take advice safely?
- History of the business: How long have they been established and what is their ethos? Where are they regulated? Are they part of a larger company but with a different name? Dig deeper, look for reviews and check your individual adviser’s history
- Impartiality: Are they impartial or do they only work exclusively with certain providers and fund managers? A variant of this is they have their own branded funds/investments that they are incentivised to put you into to get more commission
- Qualified: Does your adviser have the expertise to guide you on the complexity of cross-border pensions and investments? Do they understand the implications of selling a product to you in Portugal and your originating country? Check what qualifications they have and whether are they relevant
- Charging terms: Ask for an explicit breakdown of costs, including retrocession fees/commissions. Is your adviser willing to give you this in writing in a simple-to-understand format? Are the fees competitive?
- Service: Will you have an ongoing relationship with your adviser or will you be passed to someone else once a sale has been made? Will they provide a quality service for the ongoing fees you will be paying?
With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates. Contact us at: +351 289 355 316 or mark.quinn@spectrum-ifa.com/debrah.broadfield@spectrum-ifa.com
Can I keep my UK bank account and ISA?
By Spectrum IFA
This article is published on: 17th January 2023
17.01.23
Each person should seek individual advice when it comes to financial planning but here, we touch on some commonly held UK assets and the main points that you should be aware of.
Bank accounts
Post-Brexit many UK banks have ceased services to non-UK residents forcing clients to seek out Sterling-based accounts elsewhere. The Channel Islands and Isle of Man are popular alternatives to the UK when it comes to banking, but these are considered ‘blacklisted jurisdictions’ by Portugal and interest is punitively taxed at 35%, rather than the usual 28% or 0% under NHR (Non-Habitual Residence).
ISAs
ISAs do not retain the same tax exemptions when held by Portuguese residents and are treated in the same manner as standard investment portfolios. For NHRs, generally, interest and dividends are tax-exempt and realised gains are taxed at 28%, but if your ISA holds funds, based on the strict reading of the tax law, returns are classed as ‘other income’ and taxed at 28%. For non-NHRs, interest, dividends and gains are taxed at 28%.
Whether you retain or restructure your UK ISA will depend on your longer-term plans.
If your move to Portugal is short-term, or if you are not certain that it will be your long-term home, then there is a case for retaining your ISAs. Although you cannot add to them whilst non-UK resident you can continue to hold them, and once you return to the UK they resume their tax efficiency.
If you believe your move to Portugal is long-term (as a rule of thumb, 5 years or more) then restructuring and starting an investment vehicle that is suitable for residency in Portugal would make sense for greater tax efficiency, amongst other reasons.
A planning point you should consider is to ‘rebase’ your ISA prior to leaving the UK to ‘wash out’ any taxable gains accrued to the point of your departure. This way, if you decided to restructure, encash, or withdraw from the ISA as a Portuguese tax resident later, the capital gains tax liability should be much lower.
Investments with UK-based Advisers
Brexit brought an end to the passporting rights that allowed UK-based advisers to advise clients across the EU and vice versa. This means that many advisory firms may not have the right permissions to continue providing advice to clients living overseas. This can be worrying for those who have worked alongside their trusted adviser for many years and understandably, many UK advisers do not want to lose their clients. But good financial planning and structures for UK residents are unlikely to be effective for those living outside of the UK.
Whilst you can continue your relationship with your UK adviser and pay their fees, without the right permissions they cannot service your accounts e.g. provide investment advice for portfolio rebalancing/fund switches, and more importantly, you might not have proper recourse if anything were to go wrong. This could not only affect your investment performance, but you will end up paying for advice that you cannot (legally) take advantage of.
Lastly, there are practical implications. Does your UK adviser understand the rules in your new country of residence? We have seen many individuals miss out on substantial tax-saving opportunities because UK advisers were not aware of the local tax rules in Portugal or the implications of the planning in place.
With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.
Tax in Portugal – Webinar
By Mark Quinn
This article is published on: 13th January 2023
13.01.23
WEBINAR
International tax issues affecting
residents in Portugal
Please join us for our quarterly client update and 2023 outlook video call on Thursday 26th January at 11am.
After registering, you will receive a confirmation email
containing information about joining the webinar.
I will be updating you on international tax issues affecting residents in Portugal, and those looking to relocate here.
I will also be joined by two specialists to give their thoughts on investment and currency markets:
Christopher Saunders
New Horizon Co-founder and Chartered Wealth Manager
Chris co-founded New Horizon in 2008 and has focussed on developing services to IFAs, accountants and other intermediaries and works with many leading IFA groups and accountancy networks in the UK and overseas.
Steve Eakins
Currency specialist, Lumon
Steve has been working in the international payments market for nearly 15 years. Over that time he has helped clients through the market around ash clouds, hung governments, wars in Europe, Brexit and Trump.
Planning for Non-Habitual Residency in Portugal
By Mark Quinn
This article is published on: 16th December 2022
16.12.22
Portugal has long since been a popular expat destination, but the Non-Habitual Residence (NHR) scheme has been instrumental in attracting new residents seeking a favourable tax regime.
NHR is a preferential tax status granted to new residents and lasts 10 years. However, the benefits of NHR are not automatic and you must plan to make the scheme work for your specific situation.
Pre-arrival planning
The ideal situation is to start looking at your finances before you move. This way you can identify any tax planning opportunities available in your home country that would otherwise not be available in Portugal and utilise any tax breaks and annual allowances.
From a UK context, for example, ISAs are tax-free in the UK but if you wait to surrender until after establishing residency in Portugal you will incur 28% tax on any gain (even with NHR).
NHR period planning
During NHR it is important to maximise the tax opportunities available, particularly the flat 10% rate on pension income and nil rate tax on foreign-sourced capital gains and income. It is also the opportune time to start thinking about how to structure your finances for when NHR comes to an end.
Post-NHR planning
At this point, you become subject to the standard rates of Portugal tax and the effectiveness of your position will be determined by the planning you previous implemented, particularly during the NHR stage.
Whilst the prospect of paying up to 48% on income (excluding solidarity taxes) and 28% on all capital gains is unpleasant, it is possible to rearrange your finances over time to reduce this tax burden.
Lastly, there are some subtle rules to the NHR scheme and international tax meaning that in some cases applying for NHR can put you in a worse tax position. Likewise, those with pre-April 2020 NHR and enjoying 0% tax on pension income will be subject to slightly different restrictions when drawing down their pensions to maintain this status.
As such, we recommend you always seek advice from appropriately qualified individuals with effective cross-border experience.
With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.
Tax and property in Portugal
By Mark Quinn
This article is published on: 14th December 2022
14.12.22
I’m often asked for my opinion on property as an investment, either in Portugal or elsewhere and I must admit it doesn’t tick many boxes as an investment.
For example, it is generally subject to income tax, capital gains tax and succession tax, as well as ongoing local rates. It cannot be converted into cash quickly or easily (illiquid) and it is expensive and time-consuming to maintain. It also comes with administrative issues such as unruly tenants, rental void periods and due to its static nature, it is difficult to plan around.
Having said this, property continues to be a popular investment choice as it is easy to understand and you can touch it, giving investors a sense of security and reduced risk. Additionally, we probably all know a few ‘property millionaires’. So, what are the planning angles and how can you ‘get out’ and enjoy your spoils tax efficiently?
Capital gains tax (CGT)
Portuguese residents are subject to capital gains tax (CGT) on their worldwide property gains, unless the property was purchased before 1st January 1989, in which case CGT does not apply.
For Non-Habitual Residents (NHR) selling Portuguese property and non-NHRs CGT is due on 50% of the gain and is added to your other income in that tax year and taxed at scale rates.
In addition to this, if the property is located overseas, tax may also be due in the country the property is located. However, if there is a double taxation agreement between the two countries e.g. Portugal and the UK, you should not pay tax twice on the same gain.
Portuguese property
NHR status does not have an impact on the taxation of Portuguese property. The tax treatment is the same for NHR and normal residents, but despite the potential for eye-watering levels of tax, there are some reliefs available if the property you are selling is your home – it does not apply to rental property sold in Portugal. The two reliefs mentioned can be used in isolation or conjunction.
Main residence relief: You can mitigate all – or a portion of – the CGT by reinvesting the proceeds into another property in the EU or EEA. Any amount not reinvested is taxed.
Reinvestment into a qualifying pension or long-term savings structure: This is a relatively recent relief and is particularly advantageous for those wishing to downsize (and therefore will not fully reinvest the sale proceeds), or for those moving back to the UK or elsewhere outside of the EU/EEA.
There are strict criteria for qualification and we can advise on this area but most notably, you or your spouse must be retired or above 65 and the gain must be reinvested in a qualifying structure.
Non-Habitual Residence (NHR)
NHR gives those selling foreign property an advantage as gains are exempt from CGT in Portugal.
But what about the tax due in the country the property is located? Let’s look at UK property as an example.
The UK only applies CGT to gains accumulated since 6th April 2015 and you will also have your annual CGT allowance to deduct of £12,300 per person. Additional reliefs may also apply, further reducing any gains, but this will depend on whether the property sold was your home or investment property.
For example, if you bought an investment property in joint names in 1992 for £100,000 and it was sold today at £1m, ordinarily tax would be due on the £900k gain. But selling this as a non-UK resident, you only pay tax on the gain since April 2015 Using the straight-line method, the gain is £212,000 from which you can deduct your annual CGT allowance, leaving a taxable gain of £199,700. Assuming you had no UK income in that tax year, the tax due to HMRC would be £52,146 which is an effective rate of 5.7%.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.
Contact us at: +351 289 355 316
mark.quinn@spectrum-ifa.com
debrah.broadfield@spectrum-ifa.com
Don’t get caught paying 53% capital gains tax in 2023
By Mark Quinn
This article is published on: 12th December 2022
12.12.22
The saying goes that there are only two certainties in life: death and taxes. One you cannot control but the other you can through advice and careful planning.
Short-term CGT: approved for 2023
From 1st January 2023 any gain arising from the disposal or transfer of shares/securities held for less than 365 days will be taxed at progressive rates of income tax i.e. 48% plus 2.5%/5% solidarity tax, if your total taxable income (including the gain) is more than €75,009.
Shares/securities held for more than 365 days, or where your total taxable income including the gain is below €75,009, will remain taxable at 28%.
This is important if you or your investment adviser is trading, rebalancing or switching regularly.
Changes to taxation of crypto: budget proposal
Portugal has been touted as a crypto investor’s dream with 0% tax on gains. Although not yet agreed, investors should be aware of the potential changes to the taxation of crypto assets which if agreed, will come into effect in 2023.
Firstly, NFTs could be deemed crypto assets under the new definition. Secondly, it is not just simply selling crypto/NFTs that will trigger a charge – other triggers include purchasing goods and services with crypto or trading for a different type of crypto.
Gains arising on the disposal of crypto will be taxed if held for less than 365 days at 28%. This will apply even if the crypto was purchased before the rules (potentially) come into force on 1st January 2023.
Issuing, mining or validating crypto transactions would be deemed a business activity and taxed as such i.e. 15% of the income taxable at progressive rates without deductions for expenses (if the business did not generate more than €200,000 gross in the previous year). If the business generated more than €200,000 in the previous year, net income is taxable at progressive tax rates (48% plus 2.5%/5% solidarity tax). If trading via a company, 21% plus surtaxes may apply.
Solution: wrap it up!
Investing within a tax-favoured structure could shield you from short-term CGT. This means that your investment decisions will not be constrained by the tax implications, and you can benefit from compounding/tax-free roll-up of income and gains.
Become your own tax planner
For those relocating to Portugal, it is an opportune time to tax plan. There is no ‘step-up’ in Portugal, and gains are taxable from the date of the original purchase. You can create your own step-up by rebasing your assets before you leave your home country i.e. sell and repurchase your funds/shares. This will also allow you to utilise any CGT reliefs/allowances that would otherwise not be available in Portugal or be taxed at a much lower rate than 28% depending on your originating country’s CGT tax rules.
Contact us for a free impartial discussion if you would like to understand more.
With over 30 years of combined experience in the industry and over 15 in Portugal, Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.
Contact us at: +351 289 355 316
mark.quinn@spectrum-ifa.com
debrah.broadfield@spectrum-ifa.com
Financial myth busting for expats in Portugal
By Mark Quinn
This article is published on: 7th December 2022
07.12.22
In my conversations with clients, I come across several issues that create confusion. In this article we will dispel some key common myths.
Myth 1 – “I’ve left the UK so I won’t pay UK taxes”
The UK has a particularly complicated and adhesive tax system that clings on to former residents after they have left if they have not effectively severed their ties. So, even though you have left the UK, you could still be liable to tax in the UK on income, capital gains and on death (inheritance tax).
Additionally, certain types of income may remain taxable in the UK even after you have left and established residency elsewhere. This means that you may have to continue to complete an annual tax return for HMRC as well as make your annual declaration in Portugal.
Myth 2 – “I can come and go as I choose”
In order to maintain your residency in Portugal, or elsewhere, there are day limitations that you will have to adhere to. For example, in order to remain outside of the UK tax net after leaving, you have to cap the time you spend back in the UK. This may be as little as 16 days or as much as 182 days.
If you are in Portugal on a visa, such as the D7 or Golden Visa, you will have minimum stay requirements in Portugal to maintain this status.
Myth 3 – “I’ve left the UK, so I won’t be subject to UK Inheritance Tax (IHT)”
Unlike income tax and capital gains tax which is generally based on your location, liability to UK IHT is determined by your domicile. For most people, this means they will continue to pay UK IHT even if they no longer live in the UK.
There are steps you can take to mitigate a portion, or all, UK IHT but individual advice should be sought as it is a highly complex area. Any challenge by HMRC will be once you have passed so it requires specialist advice during your lifetime.
Myth 4 – “Non-Habitual Residence (NHR) means I’m not resident”
NHR is the 10-year tax incentivised scheme for new residents to Portugal. The name causes understandable confusion as it implies that you are not a resident of Portugal.
What NHR actually means is that you have not been tax resident in Portugal in the last 5 years, and in order to apply for NHR you must first be legally resident in Portugal.
This has created issues where people have not applied for NHR due to this misunderstanding, or worse, have been actively discouraged from applying for it even though in 99% of cases it is a financial ‘no brainer’.
Myth 5 – “NHR means I’ll pay 0%”
Whilst the NHR scheme is certainly very attractive and can result in low or nil tax rates, planning is required to achieve the best position and it does not happen automatically.
Myth 6 – “I report my income in the UK so I don’t have to declare in Portugal”
Many I speak to believe they can choose to report their income and gains in the place that results in the best financial position or where they ‘have always paid tax’, rather than where they should be paying tax.
As a resident of Portugal you should declare your worldwide income and gains, and pay the necessary tax, in Portugal.
Seek clear guidance
It is possible to achieve an extremely positive financial and tax position as a resident of Portugal, but you must ensure you have a clear understanding of the cross-border issues at play, particularly residency rules and taxation of income and gains to take full financial advantage. Speak to us for an initial consultation.
With over 30 years of combined experience in the industry and over 15 in Portugal, we are best placed to provide expert, impartial and personalised advice to expatriates. Please contact us if you wish to discuss your position.
Investment hurdles
By Mark Quinn
This article is published on: 5th December 2022
05.12.22
The corrosive effect of inflation and fees
Here we look at two key hurdles to investment performance, and ultimately your lifestyle, and some ways to tackle these issues.
Inflation
This is a topical issue as we all experience the pinch of rising energy, food, and other prices, with inflation in the UK and US recently hitting 7% and 8% respectively.
It is important to monitor and understand as it tells you how much return you need to maintain your current standard of living. So, what can you do to try and beat inflation?
Moving out of cash is critical as you are losing money in real terms. There is no one solution but building a diversified risk-rated portfolio gives you a greater chance of growing your money in excess of inflation over the medium to longer term.
- Shares/equities – as companies and earnings can adjust upwards, shares tend to keep up with inflation better over time than other investments. However, careful selection here is important as you want to select companies that are able to pass on cost increases to consumers
- Index-linked bonds – these are fixed-income investments and their return is linked to inflation rates
- Commodities – you can benefit from the causes of price increases by investing in companies that are involved in the production of raw materials, such as oil and metals
- Gold – can act as a hedge against inflation and also tends to act differently to the above investment types which means it provides diversification, particularly when geopolitical risks come to the fore
These investments do come with different types of risk so you should seek advice on how to minimise and balance these types of risks. It is also important to monitor and measure risks in relation to the returns you achieve.
Fees and expenses
Another factor often overlooked is fees. These may seem small but over time they can have profound long-term effects. You do not just lose the amount of the fees you pay, but you also lose all the growth that you might have received, compounded over years.
For example, assume you have a €1m portfolio paying 6% p.a. If you had no fees to pay, after 25 years, you would have. €4.3m. If you paid 2% p.a. in costs, you would have €2.6m.
Now going further, if you could reduce your overall charge from 2% to 1% p.a., you would have approx. €3.5m. This seemingly small 1% saving is really €793,215 in real terms over 25 years! And this is being paid to someone else, not you.
What can you do to control costs?
All investments have cost so you cannot avoid them, but you can manage them at all levels.
- Structure fees e.g. a pension or an investment. These are charged by the company providing the structure
- Underlying investment fund fees. These are charged by the company that manages the funds within the structure. These are paid out prior to the returns being paid to you, so you do not usually see these, so they can be easy to forget and review
- Advice fees. These are paid to your financial professional whose job is to recommend and advise you. Usually, a single set-up fee and an ongoing fee are charged. The effect of the latter is very important as this can have the most significant effect as seen in the above example
I would strongly recommend that you seek clarity on each applicable fee and benchmark these against alternative solutions to get yourself the best deal.
As with most things, as time goes on, innovation usually reduces prices. Review your structures regularly and shop around for independent advice, and lastly, remember that a higher price does not mean higher quality.
Debrah Broadfield and Mark Quinn are Chartered Financial Planners (level 6) and Tax Advisers specialising in cross-border advice for expatriates.
Contact us at: +351 289 355 316
mark.quinn@spectrum-ifa.com
debrah.broadfield@spectrum-ifa.com