Moving to Portugal as a British expat brings with it exciting opportunities, but it also necessitates careful financial planning to navigate the differences in tax laws and inheritance planning between the UK and Portugal. One such consideration is whether trust structures are a suitable tool for managing investments. This article outlines the benefits, and drawbacks to using trusts and highlights key considerations for UK domiciled individuals residing in Portugal.

While we are a currency exchange provider dedicated to helping you save on currency transfers, we can also connect you with trusted experts in Portugal who can guide you through tailored financial planning solutions, including exploring alternatives to trusts.

Understanding Trusts

A trust is a legal arrangement in which ownership of assets—such as cash, property, or investments—is transferred from the settlor (the original owner) to trustees. These trustees manage the assets for the benefit of chosen beneficiaries. Trusts are often used for:

• Inheritance Tax (IHT) planning: Helping to reduce the size of an estate for IHT purposes.
• Controlling asset distribution: Ensuring assets are distributed at the right time and in the right manner, especially when beneficiaries are minors or vulnerable.
• Protecting family wealth: Safeguarding assets from potential risks such as divorce or mismanagement.

Trusts can be set up during the settlor’s lifetime or incorporated into their will.

Benefits of Trusts

1. Control: The settlor retains the ability to dictate when and how beneficiaries receive assets.
2. Tax advantages: Assets placed into a trust can be removed from the settlor’s estate, potentially reducing IHT by 40%, provided the settlor survives for seven years after the gift.
3. Streamlined estate distribution: Assets held in trust bypass probate, speeding up the process of settling an estate.

Drawbacks of Trusts

Despite their advantages, trusts come with several potential downsides:

1. Cost: Establishing and maintaining a trust can be expensive, including fees for professional trustees.
2. Tax implications:some text
   • Initial IHT charge: A 20% IHT charge applies to gifts exceeding the nil-rate band (£325,000 as of 2024/25).
   • Capital Gains Tax (CGT): Transferring non-cash assets into a trust may trigger CGT.
   • Ongoing tax obligations: Trusts pay income tax and CGT at the highest rates and incur a 6% IHT charge every 10 years on their value.

Trusts in the Context of Portuguese Law

Portugal, as a civil law jurisdiction, does not legally recognise trusts. However, income from trusts is taxable in Portugal:

• Distributions: Taxed at 28% or 35% if originating from blacklisted jurisdictions.
• No distinction: Both capital and gains are subject to taxation, regardless of trust growth.

Given these challenges, it is essential to consult with local experts who understand both UK and Portuguese tax systems.

'There is no “right” or “wrong” in relation to trust planning – the suitability of different trust options will really depend on each family's position and objectives.'  

Determining whether a trust is the right tool for your financial planning depends on your specific circumstances and objectives. Trusts may not be appropriate if you need access to the capital or income from the assets or if you prefer simpler alternatives for passing wealth to beneficiaries.

At Send Money Overseas, we understand the complexities of financial planning for British expats in Portugal. While we are a currency exchange provider dedicated to helping you save on currency transfers, we can also connect you with trusted experts in Portugal who can guide you through tailored financial planning solutions, including exploring alternatives to trusts.

Reach out to us today to learn more about how we can support your financial journey in Portugal and help you save on all your currency exchange needs.

info@sendmoney-overseas.com

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