Despite the existence of several planning options, including an offshore bond, Jason Porter, director at advisory firm Blevins Franks, said many clients remained unaware of the introduction of the first ever trust law last December.
The rules resulted in any distribution made from a trust to a Portuguese resident recipient becoming taxable at 28%, with no deduction for initial cost or capital invested.
Porter said only when a trust was entirely wound up, and the assets distributed to the settlor, would the distribution be taxed to the extent of the actual gain – the difference between the value of the assets distributed or the funds received after the winding-up – and the capital would then be gifted into the trust.
“While each case is different, a Portuguese-resident UK expatriate with assets trapped in a trust should not bury their head in the sand. There remain many planning opportunities,” said Porter.
One option he suggested was the payment of distributions on the winding-up of a trust to someone other than the settlor.
The payment could then be subject to 10% inheritance tax, known as ‘stamp duty’ in Portugal, rather than the 28% tax, but as the payment is of foreign property to a resident of Portugal, stamp duty is not payable.
