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This article was originally published on Funds People. Find the article here (in Spanish).

The political intentions of the current government of Spain are reflected in the General Budget it has presented for 2019, which features increased public spending and a corresponding rise in tax. Those most affected by the increased tax burden include individual taxpayers with higher incomes and significant wealth.

With respect to Personal Income Tax, if the government succeeds in obtaining the parliamentary majority necessary to approve this Budget, the maximum national tax rates applicable to the general tax base will be 47% and 49% for income above €130,000 and €300,000 respectively (up from a maximum rate of 45% currently). With regard to the savings tax base (which currently has a maximum rate of 23%), a new band will be introduced from €140,000, which will be taxed at 27%.

Such a foreseeable increase in the tax burden makes it necessary to review the investment strategies of private banking clients and to assess the available alternatives.


For some of these clients, one option would be to bring forward sell decisions and generate capital gains before the end of the year in order to take advantage of the rates currently in force, which are less onerous than those announced for 2019. Meanwhile, tax-deferred vehicles, which allow taxation on earnings to be postponed until a point of time in the future, are becoming even more attractive.

In this context, unit-linked products appear to be the ideal vehicle for investing in accordance with a strategy selected by the client, enabling the investor to benefit from the deferral of Personal Income Tax and allowing different types of income and capital gains to be offset under the insurance policy. Only in the event that the policy is redeemed or cancelled in favour of the policyholder will the earnings generated become liable to Personal Income Tax as investment income.

As this is a life insurance product, it also enables estate planning tailored to each client, offering a broad range of options for organising wealth transfer under the insurance – on the death of the policyholder or even while the policyholder is alive if so desired – to the designated beneficiaries at any time. The designation may also incorporate specifications on age restrictions for the beneficiaries or time limits for insurance claims.

Another feature that makes Luxembourg-based unit-linked life insurance stand out as an interesting investment vehicle is that it offers considerable flexibility in terms of qualifying underlying assets, enabling high-net-worth clients to invest in funds of any kind (including ETFs) and in hedge funds, private equity and other alternative investments.

Lastly, it is worth noting that investing in a Luxembourg-based life insurance policy enables the investor to benefit from the investor protection regime under Luxembourg legislation – one of the most extensive protection regimes in Europe – and to avoid, as far as possible, country risk or the risk of insolvency of the bank acting as custodian of the underlying assets linked to the insurance. This is especially important in a time of political and economic uncertainty and instability such as this.

In light of these factors, Luxembourg-based unit-linked life insurance remains – even after the potential changes announced by the government regarding taxation of these policies under Wealth Tax legislation – a simple but effective solution for financial, tax and estate planning, offering advantages to Spanish private banking clients both from succession and tax perspectives and in terms of investment security.


Pablo Peciña
Associate Director - Wealth Planning
Lombard International Assurance