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Article initially published on CincoDías. Read the original article in Spanish here.

Advisers are recommending that wealthy customers use this jurisdiction

The private banking sector is advising its customers to use new financial vehicles and instruments to “optimise” their tax bill. Faced with the fear of future rises in taxation, many wealthy families are making use of Luxembourg unit-linked and venture capital investment companies (sicars) in the Grand Duchy.

Sicavs are no longer what they used to be. After years during which variable capital investment companies were the preferred format for wealthy Spaniards to manage their financial assets, these vehicles are now losing prominence in favour of others. Although in 2015 there were 3,409 sicavs, doubts about a change for the worse in their tax treatment have led their numbers to fall to 2,712 by year-end 2018.

The money that had been invested in these products has not disappeared. In some cases, sicavs have merged, others have become investment funds… and another part of this wealth is ending up in new vehicles, registered in Luxembourg, which offer investors more flexibility, confidentiality and better tax treatment guarantees.

“One of the formats with which we are working most with high-value customers is Luxembourg ‘unit-linked', an insurance contract that is ideal for transferring an inheritance however the customer wishes”, says Iván Gomero, a banker from A&G Banca Privada, which specialises in inheritance matters. This type of contract is a life insurance under which a wide range of financial products can be placed: shares, bonds, investment funds, exchange-traded funds (ETF)…

With unit-linked, the policyholder (the person who takes it out) assumes the entire risk of the investment. This system exists in Spain, but the wealthy prefer to use the Luxembourg format because “in recent years there has been a lot of political murmuring about tax matters and what these families want is certainty”, Gomero told us.
One of the firms subscribing most to these types of policies is Lombard International Assurance, which is headquartered in the Grand Duchy. One of its managers in Spain, Pablo Peciña Toña, explained a few months ago at a forum that the “expected increase in fiscal pressure is making it necessary to review the investment strategies of private banking customers and analyse the possible alternatives”. In his opinion, Luxembourg unit-linked are the ideal format for high-asset customers because they are “a simple but effective solution for financial, tax and inheritance planning”. The minimum investment is 250,000 euros.

Luxembourg unit-linked began to be used in Spain more than a decade ago. When the country risk rose suddenly and the (remote) risk of leaving the euro emerged, some wealthy people chose to move some of their assets to other jurisdictions. “It is normal for wealthy families to want to have, in addition to geographical diversification of their investments, some diversification in terms of jurisdictions because of what might happen. And, in this respect, Luxembourg has become one of the safest countries in the European Union”, said Iván Gomero.

Another Luxembourg system that is becoming more widespread in the field of private banking is that of venture capital investment companies (sicar). This is a product aimed at “well-informed” investors with a minimum investment of 125,000 euros. Under this umbrella, all kinds of assets can be purchased, both from listed and unlisted companies. A&G already has four of these instruments registered for its customers.
A new type of vehicle created three years ago, the reserved alternative investment fund (RAIF), is also creating interest among wealthy customers. The private equity and investment bank Alantra launched a free investment fund last year precisely using this new RAIF format.

Additional Insights

THE GRAND DUCHY’S INSTRUMENTS

SIF. A Specialized Investment Fund (SIF) is an investment vehicle for sophisticated investors. It provides great flexibility in the way it is organised as well as in the investment policy. The Tax Agency allows a single investor to be the sole owner of this type of instrument.

UNIT-LINKED. This is not an instrument but a life insurance policy. It is especially used to plan inheritance. The transfer of property does not begin until the policyholder dies.

RAIF. This is a recently-created product. It is open both to professionals and to “well informed” investors who have some kind of external financial adviser. Its processes for approval by the Luxembourg regulator are extremely simple.

SICAR. This type of vehicle makes it possible to have a portfolio investments both in listed securities and in companies that are not listed on the Stock Exchange. However, it does require a certain level of diversification.


Luxembourg - The Grand-Duchy's instruments