Tax Advantaged Investments | Services | Alexander Peter Wealth Management

The subject of tax is very much a priority

Tax advantage or tax efficiency is not the be all and end all of why you look to invest your money and it is not the only thing that we advisers look at. However, the subject of tax is very much a priority when providing the most suitable advice to you along with goals & objectives.

Tax advantages vary from country to country making it difficult for any one individual to be an expert in all of them, that is why we have several experts that will be able to help you regardless of your country of residence.

Types of Tax Advantages

We are fortunate that there are now a number of international financial institutions who provides investment products that are designed for residents of specific countries such as France, Spain & Portugal to name a few and whilst differences exist, there are of course similarities.

1. Tax deferral

Typically, no income tax, capital gains tax or dividend tax due, this is enormously powerful as Einstein famously once said: “Compound interest is the 8th wonder of the world. He who understands it, earns it; he who doesn't, pays it.”

Of course, you will have to pay tax at some point, this usually happens when making withdrawals.

2. Favourable taxation on withdrawals

The tax regime on a number of compliant solutions allows the investor to pay what is a low effective rate of tax, this is because only the gain part of the amount withdrawn is taxed as opposed to the whole amount. Here is a crude example:

You invest €100.000 a number of years ago and today is valued at €150.000 therefore the gain represents 1/3rd of the value (€50.000). You decide to make a withdrawal of €30.000 now. Since the gain is 1/3rd it means that only 1/3rd of the withdrawal represents the gain (€10,000) and it is this amount that will be subject to taxation. Let´s assume the tax is 20% which means you pay €2000.

In this example you end up paying €2000 for a €30.000 withdrawal which represents an effective tax rate of 6.7%.

3. Tax Allowance

Some countries actually give you tax free allowances for withdrawals especially when you have had the investment in force for a number of years. France and Portugal are very generous when it comes to this.

Inheritance Tax & Succession Planning

So far we have been talking about tax whilst you are alive and as much as we want to be able to spend our money before we leave this place, many of us certainly want to make sure whatever we have left, that the tax man does not take a big bite out of it.

It was Benjamin Franklin who said, and I quote:

“Our new Constitution is now established, everything seems to promise it will be durable; but, in this world, nothing is certain except death and taxes.”

Most British nationals will be caught under the UK domicile rules (not to be confused with residency) meaning your estate will have to go through probate in England, Wales, Scotland or Northern Ireland as well as your residency at time of death. The complexity of more than one country´s rules simply adds more time before the estate can be distributed.

Ensuring that your savings and investments are set up properly will make sure that the minimalist of taxes are due on your estate furthermore with the right structure it can ensure that the assets are passed on to your beneficiaries with relative ease and reduces the delay caused by probate in multiple jurisdictions.