Tax PlanningTax Planning

“The real goal should be reduced government spending, rather than balanced budgets achieved by ever rising tax rates to cover ever rising spending.”
Thomas Sowell

We have yet to meet a person who likes paying too much tax. Therefore your first objective in financial planning should be tax optimisation. Whatever your project –  buying a property in Italy, removing your pension from the UK, becoming a Swiss resident, making an investment in Germany, etc., you need to understand the tax consequences. Tax planning encompasses many different aspects, including the timing of both income and purchases and other expenditures, selection of investment assets and types of retirement plans.

However, while tax planning is an important element in any financial plan, one should guard for not letting “tax” tail wag the financial “dog.” It is important to keep in mind that all courses of financial action will have tax consequences and to explore these beforehand to ensure you actions will be tax efficient. The purpose of tax planning is to discover how to integrate all elements of your financial plan in the most tax-efficient manner thus allowing interaction of all elements more effectively and therefore minimising your tax liability.

Many different strategies or investment vehicles could be used for this, from simple early stage estate planning to the application of “Insurance Wrappers” or “Trusts”.

Definition “Insurance Wrapper”

What is it and how does it work? A wrapper, also called Investment Bond, is a life assurance policy. The value of the policy is equivalent to the value of the portfolio of investment selected by the life policy holder (the investor). The investments within the wrapper do not belong to the life policy holder but are assigned to the life assurance company which issues the policy. The life assurance company’s liability is to pay out the value of the investments within the wrapper to the investor when requested. The life insurance part within the wrapper is usually 100% of the value of the assets within and in most cases increased to 101%. This is the insurance part of the “Wrapper” contributing to the policy’s tax efficiency and many benefits.

What characterises the life assurance wrapper from any other life assurance policy is that the policy holder has the right to select a portfolio of investments to which the value of the policy is to be related. In most countries, the life insurance legal framework provides numerous tax advantages for inheritance taxes, income and capital gains. However, life insurance legislation is not harmonised between countries (for example, the tax treatments are different between France, Belgium, Germany, UK or Italy). Therefore, it is of utmost importance that the insurance wrapper is compliant in your jurisdiction.

Is an Insurance Wrapper an effective solution to protect my assets and make them tax efficient?

An Insurance Wrapper could give you many tax benefits and protect your assets in various ways and could be combined with other asset protection strategies, for example “Trusts”. This all depends on the jurisdiction where either the policy holder (investor) or the provider of the Insurance Wrapper is located. This is a complex matter and the most efficient solutions need to be discussed in detail with your adviser. Key advantages and benefits of using an Insurance Wrapper in Europe are:

  • Tax efficiency – either by reduced tax, tax free growth or tax deferral
  • Flexible and separate estate planning
  • Investment flexibility
  • Asset and investor protection
  • Increased privacy

The EU however does not have a harmonised life insurance legislation regime in regards to the Insurance Wrapper therefore we have listed a few specific countries.


Tax Policy without  bond

Tax Policy with bond


BELGIUM 25% Withholding tax Dividend, 15% Bo Reporting Requirement No Withholding Tax Insurance tax 2% Tax free growth No reporting Requirements
ITALY Interest/dividend taxed at personal income tax rate (up to 43%) Reporting Requirement Taxed paid at point of withdrawal Tax deferral No reporting Requirements
GERMANY Up to 25% on income and Capital Reporting Requirement Taxed paid at point of withdrawal. Tax deferral No reporting Requirements
UK Income based on personal income tax rate and capital tax Reporting Requirement Taxed paid at point of withdrawal. Tax deferral No reporting Requirements
FRANCE 18% capital gains tax plus 12.1 % social tax Reporting Requirement Income taxed paid at point of withdrawal. Varying from 35% to 7.5% if policy term is > 8 years Tax deferral Wealth reporting Requirements
NETHERLANDS 35% Withholding tax Up to 52% income tax Reporting Requirement 1.2% on annual policy value plus 30% on Fictitious income of 4% p.a. on value contract Tax reduction Simplified reporting Requirements
US Personal income tax up to 39.6% rate and (short/long term) capital tax 20%/39.6%) Reporting Requirement Taxed paid at point of withdrawal (special condition apply) Tax deferral 6 month premium reporting Requirement
AUSTRIA 25% capital gains tax Reporting Requirement Income taxed paid at point of withdrawal. No tax if policy term is > 15 years No Tax after 15 years No reporting Requirements
SPAIN Personal income tax up to 49% rate and capital tax 19 to 21% Reporting Requirement Taxed paid at point of withdrawal. Tax deferral No reporting Requirements
The above does not constitute any tax advice and is a simplified overview of tax liabilities in the various countries.


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