The Benefits of reinvesting profits from a property sale into a Life Assurance Product.

The Client

Rob is 70 and married to Jill who is 64. They have enjoyed a successful career in property
development in the UK. They retired to Portugal in 2015 and purchased a large villa for €1.5m.
As their family have grown older, Ron and Liz decide to downsize.
They continue to own a number of other properties so are keen to maximise their return on investments. However they prefer to find ways of saving or deferring tax whilst remaining in control.
They have heard about article 10 of the Portuguese Personal Income Tax Code which can help defer Capital Gains Tax on the sale of property if the proceeds are placed into a policy of life assurance and some conditions are verified.

The Solution

Under the downsizing regime, Rob and Jill decide to sell their property, now worth €3.5m and buy a smaller one for €1m. The rules that need to be applied to get the tax exemption by reinvesting in a life insurance product are:

1. The individual or spouse at the time the main home is sold are retired or have reached 65 years of age.

2. The product needs to be bought within six months after the sale of the main house.

3. The product’s exclusive purpose is to allow the policyholder, or the spouse, to obtain a regular payment for a period of 10 years or more.

4. The annual total of regular payments cannot exceed the annual maximum amount of 7.5% of the invested amount.

Rob and Jill obtained tax advice in Portugal that confirmed the above conditions were met and they invest €2.5m into a Portugal life assurance policy.

The Benefits

The benefits to Rob and Jill are as follows:

  1. They won’t pay Capital Gains Tax on the proceeds from the sale of the main house as €2.5m will be reinvested into a policy of life assurance.
  2. Rob and Jill receive €125,000 per annum (5%) to supplement their income from their APEX Portugal policy.
  3. The balance of €1m will be reinvested in their new main house and the reinvestment also benefits from a tax exemption.
  4. If Rob and Jill ever move back to the UK, their Portugal policy is perfectly positioned to allow them this flexibility in the future.