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Tax Efficient Savings in Luxembourg

By Michael Doyle
This article is published on: 6th November 2014

Two of the main concerns many of my clients have whilst living in Luxembourg are:

  1. The low interest rates they receive from saving in the bank.
  2. How can they save in a tax efficient way?

At the moment, as most of you will already know, whilst leaving your funds to accrue in a bank account in Luxembourg you can receive interest of around 1%. However, due to the European Savings Directive, you lose 10% of this as a tax, thus you will receive around 0.9% interest net.

Putting this in perspective, most of us have to save for the future, either for our pension provision or for our children’s further education. Based on the Liverpool Victoria Study in November 2007, it said that University costs increase at approximately 7.5% per annum (the current level of inflation for educational costs). This was further supported by an article in The Sunday Telegraph, (26th August 2007), which stated:

“School fees have risen 41% in the past 5 years”

Fees at many universities in the UK now stand at £9,000 per annum.

So the question we have to ask ourselves is whether or not by leaving our money in the bank, will we be able to meet all of our future goals?

One solution is to look at saving through a Life Assurance wrapper.

A wrapper is effectively an “investment platform” through which an enormous range of underlying investments can be purchased. Whilst the wrapper will be provided by a life assurance company, it is important to note that you are not paying a premium to purchase additional life assurance. It is, to all intents and purposes, an investment contract.

So what are the benefits of saving within a wrapper here in Luxembourg?

  1. All investments grow within the wrapper free of income tax and capital gains tax.
  2. As the wrapper is considered a life assurance contract it is not affected by the European Savings Directive.
  3. The premiums you pay could be tax deductible (subject to personal circumstances).
  4. You have access to investments perhaps only available to institutional investors.
  5. Lower minimum entry levels in underlying investments.
  6. Access to some of the top fund managers in the world.
  7. The flexibility to change your investment strategy at any time.
  8. The ability to access your funds if required.
  9. Higher bank rate. For example, there are currently bank rates offered within the wrappers of 4.25% per annum.
  10. Security.

Every person’s circumstances are different and you should always seek Independent Advice before making any investment decision. Here at The Spectrum IFA Group we offer a no obligation Financial Review before offering any advice.

Article by Michael Doyle

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