In an interview with Nerea Llona, Tax and Legal Counsel – Spain and LatAm, José Luis López-Hermida of KPMG Spain discusses the use of unit-linked life insurance as an alternative to Anglo-Saxon trusts for high-net-worth individuals in Spain. This article explores the benefits and flexibility of unit-linked life insurance in wealth and succession planning.
Trends in Wealth Migration and Taxation
Recent data indicates that over 128,000 high-net-worth individuals will relocate in 2024, driven by significant tax changes in traditionally attractive countries like the UK, Italy, and Portugal. Spain, with its favourable tax regimes such as the ‘Beckham Law’ and new incentives in Madrid for those who are resident there, is becoming a preferred destination, especially for Latin Americans.
Challenges with Traditional Wealth Planning Vehicles
Traditional planning vehicles like private holding companies, private foundations, and trusts face certain operational, legal, and tax challenges in Spain. Trusts, in particular, are not recognised in Spanish law and are transparent for tax purposes, complicating their use for estate planning and prompting the need for alternative solutions.
Advantages of Unit-Linked Life Insurance
Unit-linked life insurance offers several benefits:
- Flexibility: Policyholders can set terms and conditions for asset use and transfer, and they are adaptable to changing circumstances.
- Confidentiality: Maintains privacy as a private contract between the insurer and policyholder.
- Tax Efficiency: Provides options for income tax deferral and optimised wealth transfer in a controlled manner to the next generations. They are especially beneficial for high-net-worth individuals with international mobility needs.
Unit-Linked Life Insurance as an Estate Planning Vehicle
This type of insurance allows policyholders to establish terms and conditions for the policy offering flexibility in estate and succession planning. It enables the transfer of assets to be deferred and divided according to the policyholder’s instructions, regardless of the provisions of the last will and testament. Beneficiaries and conditions can usually be modified as needed, and payments of the insurance benefit can be planned in advance independently of unpredictable events like death.
International Perspective
Unit-linked life insurance is similar to trusts in involving professional managers and custodians to hold assets, whilst it provides the necessary legal security and is fully regulated under Spanish law. Specialised insurers based in Luxembourg and Ireland are noted for their expertise in this area, offering significant advantages in investor protection and potential VAT savings to the policyholder.
Conclusion
Unit-linked life insurance is a robust alternative to trusts, providing flexibility and legal security from a Spanish perspective in an unstable regulatory and tax environment. It helps high-net-worth individuals navigate the complexities of international wealth taxation effectively.