How can your wealth manager help you to create, preserve and eventually transfer wealth to your heirs?

Fiduciary Wealth Team

We are often asked to explain what our wealth management proposition is all about? This is not an easy question to answer because we provide a wide and diverse range of services. Perhaps a simplistic way of summing up our offering would be; “to help clients secure their financial future by assisting with the creation, preservation and the eventual transfer of wealth in a tax efficient and orderly manner to their heirs.”

There also appears to be some confusion about our role as wealth managers. We are often described in the media as financial planners, financial advisers, financial consultants, investment managers or even asset managers. The truth is that we are all of the above as the role of the wealth manager is not confined to one single area of financial planning.

Wealth managers are able to provide a tailored and holistic approach to financial planning by advising clients across the whole spectrum of their wealth. They build a client centric relationship based on trust enabling clients to access a wide range of specialist services through a single point of contact. The so called “trusted adviser” with a thorough understanding of their clients’ financial goals and expectations is actually a “wealth manager.”

Cross Border Service
We live in a global marketplace where people are more internationally mobile. Wealthy entrepreneurs with overseas business interests, international workers and expatriate retirees all need to consider the issues of residence and domicile and where they derive their income or wealth as this may cause cross border conflict. Having an adviser who is “not” authorised or qualified to offer advice on products in a different country and how these products are treated for taxation purposes in a different jurisdiction is a major handicap.

Wealth management firms that are able to offer clients tax led wealth management strategies and solutions on a cross border basis provide considerable added value. Fiduciary Wealth offers a genuine cross

border service which guarantees clients a seamless transition between their financial services needs in the UK and those in the Iberian Peninsula or vice-versa.

How can we help you to accumulate, protect and pass on wealth?

As you travel through life you will find that as your financial circumstances change your financial planning needs change too and at some point in your journey the emphasis will shift from wealth creation to wealth protection and eventually to passing that wealth in the most tax efficient way to your beneficiaries. Of course at all times on your journey you will need to consider a variety of strategies to suit your personal circumstances.

However, in the complex world of personal finance, strategies are not always clear cut and what may appear to be a wealth creation solution might also assist with wealth protection and possibly even the passing on of wealth. It is also possible to develop an all encompassing strategy involving various products and solutions to achieve all three life cycle goals simultaneously.

Let’s consider a hypothetical case.

Case Study
Barry Jones is a 62 year old British national who spends more than 183 days in Spain. He is married with three grown up children who live back in the UK. He owns in his own name a mortgage free property in Spain worth €1m. He has not written a Will in Spain. Although he is technically Spanish resident he prefers to stay under the radar of the local tax authorities in the mistaken belief that this makes financial sense.

Mr Jones owns a family business in the UK which pays him an annual salary of £125K p.a. Furthermore, he also has a company pension scheme which after taking his tax free lump sum is valued at £1.4m from which he receives an annual pension of £60k p.a. His combined earnings put him in the 50% tax bracket. He earns more than enough to sustain his current lifestyle. 

Barry also has a UK offshore bond valued at
£0.5m and a family trust in Jersey with financial assets in excess of £3m. It is managed by a large private bank but he has become increasingly frustrated about their investment performance.

He is now seeking cross border tax led wealth management advice from a reputable firm.

General Advice
Firstly, he should consider writing a Will in Spain otherwise on his death property assets will be distributed in accordance with Spanish IHT laws negating him the opportunity to distribute the assets freely.

Equity Release
Secondly, he has a significant potential IHT liability on his Spanish property but with careful and proper financial planning it is possible to mitigate tax either through a whole of life insurance policy or an equity release scheme. If he were to die today his beneficiaries would be saddled with a tax bill in excess of €250k to inherit his home because unlike the UK where the estate of the deceased pays inheritance tax in Spain it is the beneficiaries who are liable for the tax before distribution of assets takes place. Whilst in the UK the estate of the deceased will enjoy relief on the first £325K of gain beneficiaries who are non resident in Spain receive no relief.

QNUPS (Qualifying Non UK Pension Schemes)
Thirdly, if he plans to exit the UK and establish formal residency elsewhere (presumably Spain) the proceeds from the equity release could be invested in a QNUPS which has been specifically designed to accept unlimited non-pension assets such as cash and financial assets as well as property or fine art. QNUPS are considered a more flexible pension arrangement than QROPS given that they enjoy the same potential benefits with none of the restrictions; no reporting requirements to HMRC, greater investment flexibility are and not subject to lifetime allowance limits. Furthermore, investments in a QNUPS would be exempt of UK inheritance tax and local succession taxes immediately and legal opinion suggests that even if Barry were to return to the UK due to say ill health the assets held under the scheme would still remain outside the UK inheritance tax net although this has yet to be tested in the Courts.

Meanwhile the assets would enjoy tax free growth whilst at the same time ensuring that the transfer of wealth to heirs would be made in a tax efficient and straightforward manner. However, if Barry’s financial circumstances were to take a turn for the worse he would be able to supplement his income by drawing down a pension from the scheme as a temporary annuity paying minimal tax.

This leads us to the fourth and perhaps most crucial point about residency. Barry cannot remain a financial nomad forever but there are ways of reducing his overall tax liability in a legal way without having to lose sleep at

night. In the past local tax authorities may have been slow in chasing expatriates flaunting the 183 day rule but given the precarious financial position Spain finds itself in they are now eager to raise as much revenue as they can and are extending their net far and wide. Barry should seriously consider formalising residency in Spain unless of course he has no intention of exceeding the 183 day limit in which case he should explore other more favourable residency options such as Gibraltar.

Fifth, if he were to become a Spanish resident he would be able to transfer his UK pension into an offshore pension arrangement such as QROPS (Qualifying Recognised Overseas Pension Scheme) where pension income can be drawn in a very tax efficient way with the Trustees structuring these payments as five year temporary annuities. This would effectively reduce the tax rate from 50% to single digits virtually doubling net pension income overnight.

A transfer of pension benefits into a QROPS would also immediately protect Barry’s beneficiaries from being subjected to a potential 55% tax charge on his death for any lump sums payments from his pension fund. This tax charge would apply because Mr Jones is already drawing down his pension and would in fact apply to anyone who has taken their tax free lump sum even if they were not drawing income from the remaining fund.

It is evident that QROPS fulfils all the requirements of a robust wealth management strategy; wealth creation through tax free growth, wealth protection through tax mitigation and the ability to pass on wealth in a tax efficient manner with significant estate planning benefits.

Offshore Bond / Tax Wrapper
Sixth, if Barry becomes a Spanish tax resident he could potentially exploit residency and domicile rules to his advantage effectively en- cashing his UK offshore bond whilst non UK resident to avoid being subject to UK income tax on any gains. The funds could then be transferred into the Spanish version of the offshore bond which provides tax deferral on savings with only the growth element of the bond being subjected to tax when a full or partial withdrawal is made and then only at the capital gains tax rate which is currently set at a maximum of 21%.

Tax efficient savings plans in the UK such as ISA’s will no longer enjoy their tax free status when residency has been changed to another jurisdiction and will remain exposed to UK inheritance tax. A tax wrapper that is approved by the Spanish authorities might not only satisfy Barry’s requirements for tax efficient investment but might also help mitigate local succession taxes.

Investment Management
Seventh, if Barry is becoming increasingly disillusioned with the performance record of his investment managers he either needs to move the assets to a boutique asset manager such as ourselves who will focus on performance or split the assets between a couple of portfolio managers to compare relative performance. It is also possible to seek the services of a risk management consultant who can design a tailor made portfolio performance monitoring function for him.

Eight, if the portfolio is of a certain size and Barry’s concerns are more deep rooted perhaps it might be appropriate to appoint a protector to work alongside the beneficiary. This may occur if there are legitimate concerns about the ability of an entity which provides trustee and investment advisory services to the same client/family or two closely associated firms which are supposedly independent to provide impartial and best advice.

Financial and Tax Advice
Ninth it would appear that Barry is relying on an offshore trust to escape taxes but has not been made aware that the EU has appointed an expert working group to close existing loopholes in the EU Savings Directive. The plan is to increase the number of financial instruments and investments which fall within scope of the Directive as well as introduce look through facilities for trusts to ensure tax recovery. Although the future is uncertain it is still possible to provide investors such as Barry with a completely transparent route to shelter their accumulated wealth and mitigate tax. For an expatriate like Barry who is considering becoming a tax resident in Spain the QROPS / QNUPS combination provides a powerful tool to mitigate tax and shelter assets from UK inheritance tax.

Fiduciary Wealth is recognised as one of the leading providers of cross border financial advice helping clients’ bridge the gap between their financial needs in the UK and the Iberian Peninsula. If you are planning to move between UK and Iberia, or are a UK national residing either permanently or part of the year in Iberia then you should make sure you are receiving best financial advice from a reputable firm of wealth managers who can add this cross border element to their advice proposition. To find out how Fiduciary Wealth can help you give us a call on +350 200 50982 or email