Episode 7: Becoming a Tax-Smart Expat – How You Can Migrate With Ease

Max Keeling

Moving to another country is difficult in itself, let alone having to worry about your investments being drained by the country’s tax. In this episode, I have invited Will Price from Quilter to share how Private Placement Life Insurance might be useful in this situation.

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Max: 

Hi, I’m Max Keeling and welcome to another episode of the Expat Wealth Blueprint, the podcast for people in Asia that have or aspire to have $2 to $20 million and are looking for simple approaches to managing their wealth. 

Today’s episode is a bit different. I have got a guest speaker. So, I’ve asked Will Price from Quilter to come and talk to us about using Private Placement Insurance and whether this is a potential platform that you should be thinking about using. 

I got him on specifically to go through a couple of case studies. So one is if you’re going to move to the U.K. And one is if you’re going to move to Australia. 

Often, we don’t advocate using insurance as a platform. But there are definitely circumstances that can be useful. Often, these products do get sold to expats around Asia and they can end up being high-cost setups which benefit the adviser and not necessarily the end user. 

But you can actually set them up in a very cost-effective way, and they do bring a lot of tax benefits if they’re used in the right way. We don’t want to use it just because of that, but it’s definitely worth understanding them. 

So, if you’ve already got these products or you’re skeptical about these products or you’re just curious, listen in as we go through in a bit more depth.  

This episode is a bit longer than some of my other podcasts but let me know if you like the format. Let me know if you want us to go into more detail, because this is quite a complex area and so we wanted to keep it quite high level today. So, enjoy this episode with Will Price from Quilter. 

Max: 

Hi Will, welcome to the Expat Blueprint Podcast and thanks for joining us. 

Will: 

Hi Max, it’s good to be here. Thank you. 

Max: 

I’ve asked Will to come, who’s from Quilter and we’re going to be talking about how you could potentially use insurance products for investing. 

And now normally, we would advocate that you don’t use normal insurance products for pure investing. But there are certain circumstances that it can actually be useful. And Quilter actually is a specialist in this area. So I’ve got Will on today. We’re going to talk through a bit more about what are these different insurance products. How you can use them. And I’ve asked him to go through some case studies as well so you can get an idea of who this might be useful for. 

Now, this is a podcast, but we are going to go through some slides. I asked Will to prepare some material. So if you want to be able to see what we’re going through, go and have a look on our YouTube channel where we’ll post the video. So Will, we’ll just have to make sure we explain stuff as we go through for people that are just listening in. 

Will: 

Sure, no problem. 

Max: 

Before we get into insurance, because maybe that’s not always everyone’s most exciting topic, it’d be really interesting to know what’s your background. What’s your expat journey and how have you ended up in Singapore? 

Will: 

So yeah, obviously originally, I’m from the U.K. as you can probably tell from the accent. But when I graduated from university, I was looking around for a job and I remembered picking up a copy of the Yorkshire Evening Post. That’s being the part of the U.K. I’m from. And there was an advert going for a job with Barclays Bank in the Isle of Man.  

Max: 

Exotic Place 

Will: 

Indeed, yeah. Another small island like Singapore, but that’s about the only similarity. 

So yeah, I saw this advert for Barclays in the Isle of Man. The reason it stuck out was because my mother is originally from the Isle of Man. And I ended up applying for the job and got offered the job. And ended up moving to the Isle of Man back in the end of 1999.  

Max: 

Wow, okay. 

Will: 

So yeah, worked with Barclays for a while and decided that banking wasn’t quite for me. And moved over to the life insurance side of things a couple of years later with Zurich, also in Isle of Man.  

I really enjoyed that. Much preferred the life insurance side of things and stayed with them in the Isle of Man until 2007. And I got the opportunity to move over to Singapore with Zurich. And did so. Jumped at the opportunity to change the climate and in a much positive manner. And move to Singapore and have never left. I have been in Singapore now for 14 years. Half of that roughly with Zurich still and then I moved over to work with Quilter back in 2014. And still with them now. So yeah, I lived as an expat for over 2 decades now. 

 Max: 

Yeah, wow. 

And how has Singapore changed now compared to when you first came out? 

Will: 

Well, in many ways. Most striking one is probably the fact that Marina Bay Sands didn’t exist. And it wasn’t even land. It was being reclaimed as I arrived. So there’re some sort of obvious visual changes. 

And then, apart from that, it hasn’t changed a huge amount. I mean, it physically changes – new buildings. It’s a very vibrant place. But you know, cost of living hasn’t moved an awful lot I would argue. You know, rental prices and so on. They haven’t changed the tax side of things, which obviously we’re going to talk about later. That has remained relatively stable. And it’s you know, it continues to be a really good jurisdiction for expats to move to maximize earnings potential. And that’s a lot of what we do, is try and help people do that. 

 Max: 

So let’s get into today’s topic, which is kind of looking at Private Placement Insurance and what kind of tool that might be. Now I say that this is useful for people that have got $2 to $20 million of investable assets. Or it could be GBP, USD, pick whatever currency. And I guess at that range, you’re at that bottom end of the private banking space, and certainly a problem we’ve started to work with people in that in that world. 

 So who are some of the players that are in this world? If I was with a particular bank, do they have their own version of this? Are they outsourcing it to people like Quilter? How does that work? 

Will: 

So yeah, the products are provided by MAS licensed life insurance companies. So banks typically don’t do products themselves. There are 1 or 2 exceptions, but typically banks will outsource. And I’ll often have a, what we call a bancassurance agreement, and there will be a tie up between a particular bank and a particular life insurance company. 

Well, that kind of limits the options that are provided to clients to some extent. Clients might consider looking for more independent advice, perhaps, to get a broader range of options available to them. And that’s where perhaps, working with a financial adviser might come in. But yeah, banks do have these agreements themselves as well. 

 Max: 

Yeah, okay, cool. 

Maybe take us through a bit more about who Quilter is. What are these products? How do they kind of work? And if you want to share your slides. And like I said, if people want to look at these on YouTube, they can do. But we’ll talk through them as kind of our base. 

 Will: 

Okay, first slide is my compliance team’s favorite slide. Just a bit of a disclaimer as to what people’s roles are and licensing and so on. 

As I mentioned, we are a life insurance company where we’re regulated by the MAS and we are authorized to provide products. We don’t actually give financial advice ourselves. We always work via an authorized financial advisory firm such as Providend and yourself, Max. 

We’re there to support, give guidance on the technical aspects of the product and how it might fit into clients’ scenarios. But the adviser is the one that’s making a recommendation, as it were. 

 Max: 

Yeah, I think that ties in with how we see things as well, that people shouldn’t be going out looking for products per se. Like with everything, you still need a financial plan or an understanding of what it is you’re trying to achieve. Understand how much money you need to be accumulating to achieve your goals. And then some of these products, as you’ve pointed out, they do need to be used by a financial adviser that understands how to use them.  

So we’re not expecting people to be experts in these by the end of this session. This is more just to give you an idea of what circumstances they might be used in and whether they’re appropriate. But doesn’t mean you should be rushing out and demanding one of these. It depends on what your circumstances are, definitely. 

Will: 

Absolutely yeah. 

Okay, so I’ll give you a quick overview of who we are and we’ll run through some potential scenarios that we often see. People moving to places like Australia or the U.K. and U.S. with listed shares and some of these tax consequences of these structures. Look at what insurance as an investment is. And then the client profiles case studies as you’ve mentioned and what Private Placement Life Insurance offers to these clients. 

In terms of who we are at Quilter plc formerly Old Mutual Wealth, listed in the U.K. We separated out from Old Mutual back in 2018 and became Quilter plc. As you can see, we are a FTSE 250 listed business. One of the largest standing wealth management firms in the U.K., managing £119 million worth of investments. And you can see our long-term default rating from Fitch. 

And in Quilter International, which is the part of the business I represent, a formerly known as Old Mutual International, we are the company’s cross-border provider. So we specialize in looking after clients with multi-jurisdictional complications or issues. 

So it might be someone like myself, from the U.K. who is now living overseas, and they may return to the U.K., although that’s not part of my own personal plans, but I might move to another jurisdiction. Or I might have wealth in different jurisdictions. And my wife is in the Philippines, and we have a house in the Philippines. I’m currently looking at buying a house in the U.K. And it’s a lot more complicated than you would assume, as I can attest to myself. And these are some of those issues that clients can have, we try and help with. 

Headquartered in the Isle of Man, which you can see from the map, is that little green dot, as I’ve mentioned. For those that don’t know where it is, you can see that it’s in the middle of the Irish Sea and it’s a fantastic offshore jurisdiction. Very strong insurance law, which is why insurance companies like Quilter are based there. Very strong legal system based on England, Wales, which means that it’s a common law jurisdiction which is very important and useful when it comes to passing wealth on using these types of structures. 

And in terms of the other fact, you can see it’s the longest, running continuous parliament in the world, having been founded in 1978 AD, which I always remember because I have a photograph of me as a baby at the Millennium celebrations with my mother. 

Max: 

You’re the kind of person that you want on a pub quiz team that knows these niche facts about the Isle of Man. Given that you’ve lived there, and your mom has been there. 

Will: 

Yeah, indeed. 

And so, yeah, that’s a brief introduction to Quilter, who we are, where we’re based. The next section I was going to go on to is, some of the issues that we see clients potentially have that we might be able to help with and in conjunction with their adviser. 

Max: 

I guess one thing that  can be useful and interesting for people is often when you start looking into these products, you think that they’re useful for different countries that you’re going to go to. But actually, a lot of the benefits are actually the same product you can use, isn’t it? It’s more that some of the countries that it can be, from a tax efficiency point of view. I guess there’re a lot of them is where they’ve got similar-ish laws to the U.K., is that right? 

Will: 

Uh, yeah. Broadly speaking, I mean just to give a very quick history of these products. They originally grew out of the U.K. back in the 1980s, from our perspective. And the U.K. has very strong legislation as to exactly how these things, these products, are treated and taxed, and there are various reliefs available that make them quite attractive to the potential returnees to the U.K.  

And over time, we’ve come to realise that they are also very powerful in other jurisdictions. And an obvious one is Australia which we will touch on, helping to mitigate U.S. state tax issues. And there’s a wide variety of other countries where they are useful. 

Max: 

Yeah, I guess like India and South Africa that tend to have some good benefits. 

Will: 

Yup. 

Max: 

And it could be that there are other countries and I know you guys keep a list of them. Depends on the country you end up in, how they’re going to tax and treat these products. So just to your point, we’re going to go through some case studies. But it might actually be that these can be useful in other situations, but they’re going to be a bit more niche. I guess reach out to me if someone is going through that. 

Will: 

Yeah, absolutely yeah. 

One key area as I’ve mentioned is people that might be moving or returning to Australia. So expatriates living here in Singapore or anywhere else in the world in reality.  

Here in Singapore, we have a very benign tax system and so you don’t get taxed on your investment income and you just have tax on your employment income here, so that’s quite a good opportunity to build up the wealth for the future. 

But when you return back to Australia, you’re going to start paying capital gains tax, although it’s taxed at income tax rates in Australia, which I will cover briefly later. How can you mitigate that, that liability? And you have lots of people also looking to migrate to Australia. I know many Singaporeans in particular, look at that as a market, mostly due to the weather. 

And again, it’s a quite a key market for children studying there. Many people, again, Singaporeans, send their children to study in Australia and they may come to love the country and decide to stay. So how can you consider passing wealth on to children and so on. 

And the next section is U.S. shares. I think many people perhaps don’t realize that when they choose to invest in the U.S., which obviously is the world’s largest market, everybody wants to be investing into the likes of, you know Google, Amazon, Facebook etc. But with that comes a potential U.S. state tax liability.  

If you are not a U.S. citizen, your U.S. state tax liability is very small. It’s only USD $60,000. Anything above that brings a potential tax and liability on your death of between 18% and 40%. So whilst you might choose to invest in Alphabet shares, you might get 20%, 30% growth, but you can wipe that out by the state tax. And that’s something that our structures can potentially help with as well. 

Max: 

Yeah, and that goes for funds as well, if you’re buying funds that are domiciled in the U.S. Hence why a lot of large fund managers issue the same funds in European stock exchanges, for example. Yeah, that’s something we come across a lot. People have bought themselves a lot of different funds and shares and not realizing they’ve got a potential exposure to U.S. state tax. 

Will: 

Yeah, absolutely. 

So that’s just a few of the key areas about where solutions like this might work. Because as you were saying, Max, it’s very case specific as to what works for one particular client, but it’s a huge complex bit of planning with the kind of wealth that expats have all over the world. It’s key that they get good quality advice, and you know, keep that over the years because scenarios change and legislation changes. So it’s important to have a financial adviser that keeps abreast of that and can support you on that journey. 

So yeah, I’ll run into what is insurance as an investment? How does that work as a structure. Just to give clients an idea of what this might look like. 

The key objectives when you’re looking at structuring your wealth is to grow that, preserve it. Spend it when you need to, then transfer it onto the next generation. But it’s important to look at doing that in a controlled, tax efficient manner. 

Max: 

Yeah, and so I was saying before, it shouldn’t be that tax efficiency is what driving you. That should be more of a consideration when you come to the implementation side. You shouldn’t be necessarily looking to, only look for ways to avoid tax. It should be more, “How does this fit in as a tool across everything else?” 

Will: 

Yeah, absolutely yeah. As you can see here, these types of products are a trading platform at heart. And there are many different types of trading platform. Whether you choose one that is written as a life insurance policy or not. Some change their day-to-day functionality, but it might change the outcomes when you are looking to either take wealth out yourself or pass it on to the next generation. 

Typically what we often see is, clients will have a number of different structures and investments that have, as you can see here, on stocks shares, unit trusts, ETFs, and so on. But they haven’t necessarily consolidated those onto a platform yet. And they may be holding those directly, which can make them quite burdensome from an admin perspective.  

Every time you want to sell something you have to provide ID and proof of address to 5 different financial institutions rather than just 1. And if you were to die, unfortunately, then you would need to get probate in the jurisdictions where you hold all those different instruments. Which could be in many different countries and that becomes a real burden for your state to manage that process later on. 

So typically, once a client start working with some form of adviser, they would look at consolidating those assets onto a trading platform and that does give those administrative benefits. You get a good, consolidated view of your wealth. So everything is all in one place. You can log on, see exactly how much that wealth is growing for you. You’re only dealing with 1 institution in terms of that ID, address documents and so on. So it got lots of good administrative benefits, but it doesn’t necessarily manage the tax outcomes at the end of it.  

That’s where people might consider using a product like Private Placement Life Insurance because the way an insurance platform works fundamentally changes the structure. With a standard trading account that’s at your bank or a bespoke trading platform, you are still the registered owner of those assets. So every time you sell something, you will be liable for tax depending on where you live in the world. And as I said earlier, in Singapore, that’s not a consideration. But should you move back to Australia, to the U.K., or anywhere that does have capital gains tax, every time you want to rebalance your portfolio, you might be realizing a gain and getting taxed as the consequence. 

Max: 

Yeah. 

Will: 

When you hold those same investments via a life insurance product like this, you actually change the ownership of the underlying assets. You now own a life insurance product, but the assets are registered in the life insurance company’s name. Let’s say you have some Apple shares, you transfer them over to a Private Placement Life Insurance product, the registered owner of those shares would now be the life insurance company. If you were to die, it’s the owner of the life insurance policy that died, not the owner of the shares, because the owner of the shares is the life co. 

So you can remove some tax liability on death, such as the U.S. state tax liability, but also when you’re buying and selling assets. You might sell a particular fund because you think it’s a good time to crystallize those gains you’ve made and see an opportunity elsewhere. When you do that, there might be a couple of gains tax liability on the trading platform. But again, because you’ve changed the ownership with this, and even now if you were to change the ownership to ourselves, Quilter International, headquartered in the Isle of Man, it’s the Isle of Man life insurance company that’s selling that fund. The Isle of Man doesn’t have any capital gains tax, so again, you can remove that liability. 

Max: 

Yeah, and I guess that’s one of the key advantages of these kind of products as well is, you’re not restricted in terms of what you can actually put inside of it. Whereas one of the reasons we don’t generally, or I’m not a big fan of insurance in general, is we often see that the structure itself is quite expensive and then the funds within it are the insurance companies’ own funds, or there’s a limited range and you can’t really direct what you’re invested in. 

Whereas with this kind of setup, you’re setting up the structure, which you can pretty much set up as cheaply as an alternative trading platform. Therefore, there’s no necessarily drawback or benefits when you’re in Singapore, but it’s all about where you then move to. But it means you don’t have to change what you’re actually investing in because within your kind of products, it’s an open architecture idea, isn’t it?  

If I want to trade stocks, not necessarily that I’m saying this is what people should do, but if you want to trade on particular markets, you have got that full ability to be able to do that rather than it just being a list of 30 or 40 funds that happen to be onboard that platform. 

Will: 

Yeah, absolutely. Broadly speaking, in terms of insurance-investment solutions available to clients in the markets like you could perhaps and put them into 2 main categories in terms of where they’re marketed and the ones that you referred to as, as you know, perhaps being slightly higher cost, but with a more restricted investment universe. They are more marketed at the retail market, whereas solutions like Private Placement Life Insurance are much more targeted in the high-net-worth arena. Whereby clients are a bit more savvy in terms of their investments or they’re working with an adviser who certainly knows what they’re doing. And they require more sophisticated investment options and more flexibility. And with that comes and cost efficiencies as well. 

Max: 

Yeah, yeah, okay. 

Will: 

So, I think it’s a bit wordy, this slide. But the thing to point out here is that these are, the second paragraph is that, these are globally recognized legal structures. And there’re lots of legislation around the world governing how they are treated, U.K. is a really good example of that. They don’t use the PPLI terminology in the U.K. They call them Personal Portfolio bonds in the U.K. and there’re some great, strong legislation there. 

Australia is another one as I’ve mentioned, has good strong legislation as to how these are treated and so on. So these are known structures and the authorities are comfortable with and, you know, happy to tax in the way that they do. 

Max: 

Yeah. 

Will: 

So in this case study, before the next section, anything else you want to cover before I go into that? 

Max: 

I mean like you said these aren’t products that have only just popped up in the last 5 or 10 years. And obviously you have got a risk that the jurisdiction you end up in does change their tax rules. But to your point, with these, there is a lot of case law or it’s written into legislation. And so this is not necessarily about tax avoidance. It’s about tax efficiency. And like you said, this is a well-trodden path in terms of how this would get dealt with in particular countries.  

Rather it being something that we sometimes do see structures that potentially have some– might have some good tax benefits, but they haven’t been around for long enough. Maybe they haven’t been tested, particularly like you said, in the higher net worth space. Maybe certain countries are okay when it’s a small amount of money. But if someone was putting $10, $15 million in some of these structures, you perhaps are more likely to get on the radar. Whereas at least with things like this, I’m sure you’ve seen on your side, people have put $X million worth into policies and you’re not going to be on somebody’s red flag list, for example. 

Will: 

No, no, no. As I said earlier, now we are a listed business in the U.K. FTSE 250 business and, you know, we wouldn’t want to be associated with anything that wasn’t fully in compliance with the various regulations. And I think one of the key things that an adviser helps a client with is navigating those regulations. Now when you look at the tax codes in various countries, they are getting more and more complicated. The U.K. is a very good example. It has the third longest tax code in the world. 

Max: 

What are the first and second? 

Will: 

You probably won’t be surprised by the first one. It’s the U.S. And that’s without taking into account the fact that it has tax at a state level as well. And the second one is India, apparently. 

Max: 

Oh okay, interesting. 

Will: 

So yeah, that’s that. 

I think everybody can see every country around the world is getting more and more complex in terms of tax, with the possible exception of Singapore. 

But you know, that makes it really hard for clients to know what reliefs are available to them, and this is legitimate tax savings that the government puts in place for people to use. But in places like the U.K., you have a self-reporting tax system. It’s your duty to know what reliefs are available and to utilize them. 

But if you don’t know what are there, then you’re going to pay more tax than you should be doing, and that’s what an adviser helps you with. 

Max: 

Yeah, okay, cool. So let’s look at some case studies then. What kind of scenarios people might find themselves in? And give us an idea of what kind of benefits or why you would use some of these products. 

Will: 

Sure, yeah. The chap we have here today, Tom, who’s a British national, much like myself. Although I’m 1 year younger than him. He is the CEO of an IT firm here in Singapore, building his wealth for the future, currently has GBP $2 million net worth, of which GBP $1 million is held on a trading platform. Married with 2 children. His plan ultimately is that he will return to the U.K. when the children go to university in a few years’ time. And obviously as I said, looking to maximize the earning potential whilst not resident in the U.K., paying U.K. taxes. Which are these. And this broadly works for most countries around the world. Most places are– Almost every country has some form of income tax and most developed nations tend to top out around that 40%, 45% tax rate. Majority of countries have a residency-based tax system whereby any income you earn regardless of where it is in the world, you pay tax because you’re a resident of that country. And that’s capital gains tax here for the U.K., which as you can see, it’s 10% or 20%.  

And one other slightly less common tax that we have in the U.K. is the inheritance tax. It’s called estate tax in some countries around the world, where on death, there is a potential liability depending on how much your estate is worth. But I’d say more countries do not have an inheritance tax or equivalent than those do actually have one. That’s the scene as to what tax is a British national or a British resident might have. 

So on return to the U.K., Tom would be with his trading platform. All trades would be subjected to capital gains tax of 20%. All of those gains are going to have a drag on them every time he sells an asset to buy something else. You’re losing 20% of that gain, which can drag over a number of years. There’s also dividend income, which is subjected to income tax. Any gains made from withdrawals in the trading platform, which is subjected to 20% tax as well. 

And the final point in terms of passing on that wealth in the event of someone’s death. Hopefully everyone has written a will because everybody should. Wills are useful but they aren’t the only solution. And you might need to get probates for your different investments, and they might be in different countries and that can be quite time-consuming and delay your family receiving wealth. So that’s sort of this client scenario. 

And next, we’re going to look into Private Placement Life Insurance and what does it offer. And focus in on the tax deferral side of things. 

As I said earlier, because you’re changing the ownership of these assets to be the life insurance company, which in our case is headquartered in the Isle of Man, where there isn’t any capital gains tax, that means that your investments can grow virtually tax free. There might be some withholding tax, depending on where the investments are held and so on. But you’re not paying capital gains tax every time you sell an asset to buy something else in this type of structure. Which means that you know that investment grows, you get growth on what would have been taxed, and that compounds over time. And no limitations are set as to how much clients can look to put into these types of structures. 

So what did Tom do in this scenario? He transferred that wealth that he was holding on a trading platform over to a PPLI structure before he returned to the U.K. And by doing so, removed his capital gains tax liability for sale of investments and removed his income tax on dividends.  

And to put that in numbers. He’s investing at GBP $1 million in this example. So had he got 7% growth in year 1, his portfolio was then rebalanced. Because he wanted to maintain his current investment profile or source out different opportunities, whatever that might have been. So there was a gain there of GBP $70,000, which is a nice problem to have. But that would have been taxable, capital gains tax is at 20%. So a bill of just GBP $14,000 in year 1 alone. By holding that same investment, no change into what he’s chosen to invest into, that GBP $14,000 tax bill would have been deferred and saved in year 1. Imagine rolling that forward for a 10-year period. That makes a really significant difference to the client potentially. 

Max: 

Yeah. So this is a very typical situation, isn’t it? People come over, get a role. Maybe they come to Singapore thinking, “I’ll just come here for 2 years and then go back to the U.K.” Actually end up being here for 10 years, like myself. And yourself being here for longer. And not necessary thinking about the cash that you’re building up here. And then only start to think about their setup when they realize, “Oh, I’m going back to the U.K.” 

And you know, this kind of scenario, say with Tom, I’ve definitely come across people that have ended up back in the U.K. and then realize, “Ah, I should have set some of this stuff up before I left.” I think some of this is just saying yes, you could have a trading platform and you go back and that’s fine. But then you are going to be subjected to all of the taxes in the U.K. Or you could potentially use something like Private Placement Insurance or an Insurance Wrapper and you’re effectively being able to control the timing of when you pay tax, I guess, aren’t you? Because if you don’t need the money, you can let it grow tax free in the Isle of Man, which is what you’re saying, you’re subjected to Isle of Man taxes, but good news is it’s very similar to Singapore, so there is no capital gains tax. And then only tax them when you take the money out and you’re going to get various different allowances to be able to do that. 

Like we said before, it doesn’t mean you’ve got to change what you’re investing in, but just by changing what platform, changes the circumstances of your situation quite a lot once you’re back in the U.K. 

Will: 

Absolutely yeah. As you said, some of the reliefs are available, for the U.K. in particular, but also for Australia. They do accrue overtime. Typically speaking, the earlier you look at these types of structures, the more beneficial it might be. And it varies from one scenario to another. But there are some of those benefits which accrue over time, so it’s worth thinking about now rather than waiting until you’re about to return. 

Max: 

Yeah okay, great. 

Will: 

And then, in terms of the most important part of the process is, accessing that wealth, whether that’s for yourself during your lifetime, or potentially passing that wealth on to others. The way these products are structured is that they’re actually divided into lots of what we would call segments or mini policies. And the way I would describe it is almost like a slicer or a loaf of bread that’s also being sliced. You have lots of different slices of bread, which is your investment. When you look at the policy, you just see one overall value. But within it there might be 10 individual segments or 100 individual segments that are all identical to one another. 

Most of the time, master winning a product that doesn’t manifest itself in a particular way. And it’s not something you need to consider, but where it’s useful is for transferring wealth on to other people. And that can have some tax advantages as well.   

So when it comes to taking money out, you can take money across all of the segments. Or you can surrender a full segment and access the money in that way. So you’ve got some flexibility as to how you access your wealth or combination of the two, obviously.  

As I just said, you can actually transfer that wealth by gifting or assigning segments of the policy to, might be children, to a spouse or whomever. And the benefits of doing that is that at the moment, when that transfer of wealth happens, there’s no income tax or capital gain tax paid by you as the original investor. It would only be potentially taxable at the new owner’s rates. And any accrued advantages from U.S. from U.K. or Australian perspective, carry over to the new owner. So you might have had a policy for 10 years, for example, and decide to give half of it away to your daughter who’s living in Australia. All of those accrued advantages up to that point would transfer with it, and there wouldn’t be an immediate tax liability on yourself, so it’s quite useful there.  

It’s also useful in the U.K. in that I know some people use this for paying things like university tuition fees. Now they might transfer a section of their policy over to their son studying in the U.K. When he encashes that section of the policy, pays tax at his tax rate, which presumably being a student, would be a lot lower than yourself as a full-time employed individual. 

Max: 

That’s great from a flexibility point of view. So it means you haven’t got to necessarily have the foresight of who you’re going to give this to. You could actually get this setup and then later down the line, decide you want to assign certain parts of the policy to somebody. 

Will: 

Absolutely yeah, you may not ever need the flexibility of those segments and but it’s good to have them there should there be a bad day at some point in the future. 

Max: 

Yeah, okay, cool. 

Now we could probably do a whole podcast just on moving to the U.K. and what the benefits are. And I think Australia is a little bit more straightforward but it’s good to take us through a case study for either Aussies that are going back or someone that is thinking of moving to Australia. 

Will: 

Yeah, absolutely yeah. Again, this is all based on legal opinion that we’ve had on how our products are treated there. And we’ve also had a product ruling from the Australian Tax Office as to how these products work in the eyes of the tax man there. So we are absolutely certain of their treatment there. 

So Tom, lucky chap that he is now gets relocated to Australia rather than back to the U.K. With that becomes the Australian income tax liability, and all these income is taxed at the rates you can see there. Being quite a high-flying CEO, he would be in the highest tax band. Most likely paying 45% tax. Which is the same rate that he would have paid had he moved to the U.K. So in some ways a good problem to have, but an awful lot of your wealth is disappearing. 

In terms of your investment wealth, capital gains tax in Australia is taxable at your income tax rates. So if you have a capital gain from your investments, you would pay income tax at those rates. So that can be quite a significant drag and exactly the same way it would have been had he moved back to the U.K. 

So obviously, before moving to Australia, Tom decided to wrap his investments in a PPLI structure. And the way the rules work for Australia, you get that tax deferral on your investments whilst your investments are in a PPLI structure so held in the Isle of Man, no capital gains tax whilst you’re holding the wealth within the policy. Every time you sell something, no immediate tax liability. So you get that tax deferral up until the point when you decide to take the money out of the policy. And that’s where the unique rules for Australia can be extremely advantageous.  

The way the legislation in Australia works is that if you’ve held a life insurance policy for over 10 years, when you take money out of it, there is no tax liability at that point in time. So this is a really good medium to long-term planning tool for clients who are going to move to Australia. 

Max: 

This is why from an Aussie’s point of view, people going to Australia, it’s definitely worth considering this because it’s a lot more simple to understand than the U.K. rules. But you have got this 10-year kind of rule in that it would be advantageous to go and get this set up potentially so that you get that 10-year clock running. Or I guess you could set it up the year before you move back to Australia, as long as it’s your longer term pot of money. Maybe you’re going back to Australia to work and therefore you’re going to still accumulate money.  

But I think going from potentially paying 20%, 30%, 45% tax. You know, when we think about financial planning and how much money you need to have accumulated, if you’ve now got to assume that almost half of it is going to disappear in tax, you’re definitely going to need to accumulate a lot more money.  

Whereas a bit like the U.K. example, a bit of foresight, a bit of thinking about what you might need, could go a long way and put you in quite a different scenario. And I guess I touched on this before is, it’s not the same Tom’s case. He’s British. And I’ve come across a lot of people who aren’t sure where they’re going to end up, and so they might not necessarily want to go back to the U.K. They might want to go to Australia. These are not different products that you need depending on the country. You can put it in one product. But it’ll give you benefits depending on where you end up. Which again, I think gives you some really good flexibility in terms of thinking about is this a good option to be thinking about when you come to executing your investments. 

Will: 

Yeah, absolutely yeah. It’s yeah. As you rightly said, it isn’t a different product for different territories. It’s designed to be portable and move with you, you know, wherever you move in the world. Exactly how it will be treated obviously varies from one territory to another. But it is quite advantageous in a number of different territories.  

And that’s why it’s so important to work with an adviser such as yourself and keep in touch with them and update them on your future plans when they become known to you. So if you’re going to move to Australia, talk to your adviser. See what the consequences are and you know, do you need to tweak things at all or, you know, are the way you structured things currently fine as they are? 

Max: 

Okay, great. 

Well, I think we’ll leave it at that. If you’ve made it this far through to the podcast, well done. And really, like we said at the start, this is really just to give people a feel for how these products might be useful for their circumstances. 

We wouldn’t necessarily lead with some of these in terms of what the tax benefits are. Like I said, it’s always going to be about what your circumstances are, what your plan is. But even if you are in that kind of $10, $15, $20, $50 million space, these could still be a very useful tool that you should be thinking about. That you may or may not get offered, depending on who your adviser is, or if you’re using banks.  

Although we’ve gone through quite a bit of detail, we’re almost just showing the tip of the iceberg really. And so if people are thinking about how this would apply to their situation, where they might want to end up, then I suggest reach out to me. Happy to give you some more information on it.  

Don’t contact Will. I’m sure people do contact you directly, but as has Will mentioned, Quilter don’t advise directly. You have to go through somebody and we’re happy to talk through how this might work for you. 

Will, any last comments before we go? 

Will: 

No, I think that’s it. Thank you for having me along. And yeah, if any clients do contact me, I would always refer them back to an adviser, because it’s important that clients understand how these types of solutions fit into their broader financial picture. 

Max: 

Yeah, and also let us know if you found this interesting. Send us comments or emails or give us a review. 

We’ve kind of scratched the surface around the benefits of U.K. and Australia, but if people want to know– If they find this useful, I’m sure we could get Will back to do a more deep dive into, say, people moving back to the U.K. Or we could do more of a deep dive of an example moving to Australia. Or India. Or South Africa. Let us know what you find useful, and we can do something a bit more specific. 

So thanks Will! And I think we’ll leave it at that. 

Will: 

Thanks Max. 

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