Spanish private banking customers are becoming increasingly international. Whether for personal or professional reasons, increasingly many people are deciding to move their place of residence abroad for a few years (sometimes several times during their lives) or have children or other relatives living outside Spain. The problems these customers come up against are, therefore, increasingly complicated. Such as:

  • Legal uncertainties in matters of inheritance and cross-border donations, with the possibility of mandatory rules in the new country of residence.
  • Higher or even double taxation of the heirs if the customer dies whilst resident abroad.
  • Application of an exit tax or other revenue generation vehicle simply for having changed tax residency.
  • The need to change investment strategies to comply with regulations in the customer’s new country of residence.
  • Potential double taxation of income.
  • Complicated reporting obligations in the host country.
In such cases, it is essential that each customer undertakes wealth management and estate planning that is tailored to their own particular situation. This is why unit-linked life assurance is becoming widely recognised as an instrument for wealth management in the legal and tax fields: not just in a number of European countries, but also in other major markets such as the United States and the majority of countries in Latin America.

Provided that the unit-linked life assurance is correctly designed, throughout the life of the policy, subscribing customers will be able to defer income tax in the majority of jurisdictions, regardless of any changes in their residence, and in some jurisdictions, they are even entitled to discounts when the policy is surrendered or terminated (e.g. Portugal or France). It is also important to point out that these assurance policies fall outside of the scope of the Spanish exit tax that was introduced last year.

In addition, if the customer should die or decide to transfer all or some of his wealth whilst living abroad, their beneficiaries will also find themselves in a better situation as regards their tax and financial affairs thanks to the assurance policy. Many jurisdictions are, for example, considering fully exempting assurance compensation from income tax or inheritance tax (e.g. Brazil and Sweden).

Apart from its tax-related features, unit-linked assurance offers great flexibilitywhen carrying out customers’ wishes in terms of estate planning (you can, for example, plan ahead for benefits to be paid, capped or for conditions to be applied). In addition, it provides the legal security that some customers desire in the event of their death whilst living outside Spain, ensuring that wealth is transferred quickly to the designated beneficiaries and without the need to comply with foreign, and sometimes complex, inheritance procedures.

Lombard International Assurance offers various solutions from Luxembourg to customers in Spain, the most popular of which delegates the management of the investments to an independent manager who manages the assets associated with the assurance policy on a discretionary basis, in line with a standardised strategy selected by the customer in advance. Due to the flexibility provided by investment regulations in Luxembourg, the assets in which the manager can invest include hedge funds, private equity or other alternative investments, as well as more traditional investments.

In Spain, Luxembourg life assurance has become an instrument with numerous applications, in particular its flexibility in situations involving international mobility, as we have outlined here. However, it also offers many more advantages, such as simplifying compliance with reporting obligations, the asset-protection regime that applies to Luxembourg assurance companies, the simplicity with which it can be set up and the ease with which redemptions can be made.

By Pablo Pecina, Senior Wealth Planner

This article was published on the platform in Spanish.