News and developments
UNIT LINKED
With or without NHR there are still smart, safe and tax efficient ways to invest your money on onshore and legit saving products.
What are Unit Linked?
Main Legal Advantages
The main legal advantages of a Unit Linked can be summarised as follows:
| Flexibility | Policyholders can decide on how and where their premiums are invested.
|
| No minimum premiums | Policyholders can usually decide on how much and when to inject into product.
|
| Portability | Policyholders can usually move between countries of residency without change to their policies.
|
| Partial withdrawals | Although the death of the holder is usually the main payout triggering event, the policyholder can opt for partial withdrawals before that.
|
| Asset protection | Some countries, like Luxembourg, offer Unit Linked policy holders’ full protection against creditors, even foreign ones. |
Main Tax Advantages
The main legal advantages of a Unit Linked can be summarised as follows:
| Full tax deferral on build-up | Meaning no tax on income/gains before the payout/redemption (accumulation period).
|
| Favourable tax rates for delayed redemption | Meaning that if the payout/redemption occurs after more than 5 years of the Unit Linked’s existence, there will be lower tax rates (11,2% to 22,4% instead of the usual 28%).
|
| Stamp Duty exemption | No Stamp Duty taxation on the payout/redemption in favor of the policyholder or other beneficiaries (but in this case, only for distributions upon death of the policyholder).
|
| No exit tax | There is currently no exit tax if the policyholder ceases to be a resident in Portugal while still having undistributed income.
|
Main Legal and Tax Risks
The main legal and tax risks of a Unit Linked can be summarised as follows:
| Liquidity | Some policies might have some restrictions on how much and when capital and/or income can be withdrawn (usually a 5-year lock-in period).
|
| Capital loss | Unit Linked products don’t usually have capital loss protection, meaning that there will be no protections from bad investments.
|
| Market risk | If a Unit Linked is severally investment in securities and other volatile assets, the policy holder will naturally face the market risks entirely.
|
| Costs | Usually, Unit Linked products have high charges, especially at the beginning.
|
| No double taxation elimination | Meaning that if the income/gain generated inside the Unit Linked is taxed at source, the policy holder will not be able to deduct it against his gain upon redemption/payout.
|
| Risk of requalification | There is a risk – albeit of low occurrence – that some unproperly setup Unit Linked could be considered, in substance, mere investment accounts and consequently not benefiting from the Unit Linked tax regime.
|
Author: Luís Castilho